As part of the Ease of Doing Business initiative, the Ministry of Finance (MoF), the Government of India, and the Reserve Bank of India (RBI) have notified the Foreign Exchange Management Overseas Investment (OI) Rules/ Regulations/ Directions 2022. In accordance with the amendments to the Foreign Exchange Management Act (FEMA) 2015, the Indian Government (GOI) has framed/ consolidated the Outward Investments Rules/ Regulations as part of a comprehensive effort to simplify these Rules/ Regulations, in consultation with the Reserve Bank of India (RBI).
For decades, the RBI has been simplifying/ rationalising the Procedures, Rules, and Regulations under FEMA as part of the government’s initiatives relating to “liberalisation of the economy” and “ease of doing business.” In yet another initiative in this direction, the RBI and GOI have taken a significant step forward with the operationalization of the new and simplified Overseas Investment (OI) regime/framework, which is intended to reduce compliance burdens/costs by eliminating the need for seeking specific approvals, etc.
Overseas Investment Rules/ Regulations/ Directions (the framework) have been simplified for ‘ease of doing business’ and to provide global opportunities for growth/competitiveness of Indian entrepreneurs/entities (persons resident in India), to boost their global business/brand value, which will eventually contribute to India’s economic growth through increased foreign trade, employment, and investment, among other things.
The notified Foreign Exchange Management (Overseas Investment) Rules/Regulations 2022 will supersede the existing regulations applicable to Indian residents, such as the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2015.
Given the evolving business needs in India, the revised regulatory framework for overseas investments by Indian entities provides for simplification and alignment with current business and economic dynamics.
With these Overseas Investment Rules/Regulations/Directives, there will be greater clarity on Overseas Direct Investment (ODI) and Overseas Portfolio Investment (OPI) (OPI). Moreover, various overseas investment (OI) related transactions that were previously under the ‘approval route’ have now been moved to the ‘automatic route,’ which will significantly contribute to the Government of India’s “Ease of Doing Business” initiative.
Significant changes in new Overseas Investments Regime/ Framework
Some of the significant changes brought about through the new Overseas Investments (OI) Rules and Regulations are summarised below:
(i) enhanced clarity with respect to various definitions;
(ii) introduction of the concept of “strategic sector”;
(iii) dispensing with the requirement of approval for:
a) deferred payment of consideration;
b) investment/ disinvestment by persons resident in India under investigation by any investigative agency/ regulatory body;
c) issuance of corporate guarantees to or on behalf of second or subsequent level step down subsidiary (SDS);
d) write-off on account of disinvestment;
(iv) introduction of “Late Submission Fee (LSF)” for reporting delays.
MoF, GOI Notification dt. 22/08/2022: Foreign Exchange Management (Overseas Investment) Rules, 2022
The Foreign Exchange Management (Overseas Investment) Rules 2022 shall be administered by the Reserve Bank of India (RBI), which will issue requisite directions, circulars, instructions and clarifications, from time to time, as may be necessary for the effective implementation of the provisions of these rules.
These Rules provides for the prescribed manner and terms & conditions for Overseas Direct Investment (ODI) by Indian entity (Schedule I), Overseas Portfolio Investment (OPI) by an Indian entity (Schedule II), Overseas Investment (OI) by resident individual (Schedule III), Overseas Investment (OI) by person resident in India other than Indian entity and resident Individual (Schedule IV) and Overseas Investment (OI) in IFSC by person resident in India (Schedule V).
MoF, GOI Notification dt. 22/08/2022: Foreign Exchange Management (Overseas Investment) Regulations, 2022
RBI has framed these Regulations under FEMA to prescribe the mode of payment, deferred payment of consideration, reporting, realisation, and other requirements for any investment outside India by a person resident in India.
RBI Notification dt. 22/08/2022: Foreign Exchange Management (Overseas Investment) Directions, 2022
RBI has notified the Foreign Exchange Management (Overseas Investment) Directions, 2022, which are required to be read in conjunction with the provisions contained in the Foreign Exchange Management (Overseas Investment) Rules, 2022 and the Foreign Exchange Management (Overseas Investment) Regulations, 2022. RBI has notified these directions with detailed/ updated operational instructions and reporting/ approval requirements, applicable for Overseas Investments, superseding all earlier instructions in this regard, i.e. Master Directions on Direct Investment by Residents in Joint Venture (‘JV’), Wholly Owned Subsidiary (‘WOS’) abroad, etc.
The directions contained in this Notification have been issued u/s 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 and are without prejudice to permissions/ approvals, if any, required under any other law.
Despite the fact that new OI framework is substantially simplified and liberalised by the RBI/ GOI, yet there are a few aspects which need more deliberation/ clarity, like constitution of two layer structure, OPI in unlisted foreign entities, liberalized remittance limits for various modes of OPI, etc.