Outbound Investment Under FEMA Regulations – Documents & Procedure

An outbound investment is any form of investment that is conducted by a person or business by venturing into the shares of a completely owned subsidiary or a combined investment that is done outside of India.

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    Table of Contents

    outbound investment under fema

    Overview: Outbound Investment Under FEMA

    An outbound investment can be comprehended as any form of investment that is conducted by a person or business by venturing into the shares of a completely owned subsidiary company or a combined investment that is done outside of India.

    For instance, an outbound investment can be any kind of investment by a firm or a person in the shares of a firm. A traditional example of an outbound investment is Liberalized Remittance Scheme (LRS).

    However, this scheme would connect to only people who can carry out any kind of external remittance outside of India. An extreme limit of $2,50,000 USD can be transferred outside of India under the LRS scheme. Thus outbound investment has respective laws related to their working.

    Regulation for Outbound Investment

    The fundamental regulatory authority for outbound investment is the Reserve Bank of India (RBI). Across this central bank, numerous venture capitalists can conduct activities and transactions which include an outbound investment.

    The government of India (GOI) aroused the Foreign Exchange Management Act, 1999 (FEMA) with a belief to govern foreign business trades in India. Because of this act, the quantity of foreign exchange reserves in India is boosted.

    Besides this, the RBIs under section 11 of the FEMA authorized certain organizations called authorized banks or authorized vendors to accomplish deals on behalf of firms that wish to obtain the outbound investment.

    Apparently, there are distinct modes to apply for generating both forms of investment. An individual would have to apply with the respective authority.

    Modes Of Making Outbound Investment

    Modes of making Outbound Investment

    Outbound Investment- Outbound investment also needs a certain procedure to be fulfilled. Identical paths are obeyed for making outbound investments, i.e. automatic path and authorization path.

    Though, an outbound investment can be brought in the shape of overseas direct investment (ODI). An ODI is a kind of straightforward investment in the stakes or capital methods of a foreign-owned or wholly-owned associate or any other type of capital.

    Indian Party

    An Indian Party is a firm integrated in India with a body organized by an Act of Parliament, a partnership company enrolled under the Indian Partnership Act 1932, or an (LLP) integrated under the Limited Liability Partnership Act, 2008, or any other substance in India as the RBI may notify.

    When 1 or more than 1 firm, organization, or entity capitalizes on an outside Joint Venture (JV)” or “Wholly Owned Subsidiary, the mixture becomes an “Indian Party.”

    JV/WOS

    A “Joint Venture (JV)” or “Wholly Owned Subsidiary (WOS)” is an abroad firm built, enlisted, or integrated into an agreement with the rules and legislation of the proprietor country in which the Indian party or citizen of India can make an explicit investment.

    When other outside promoters take an interest in the Indian Party, the abroad company is compared to a Joint Venture of the Indian Party/ Indian. In the circumstance of Wholly Owned Subsidiary (WOS), one or more Indian Parties/Resident Indians regulate the entire capital.

    Overseas Direct Investment (ODI)

    ODI India implies that investment has done either through the Automatic Route or the Approval Route, in the structure of money offerings or subscriptions to an Abroad entity’s Memorandum, or the buying of existing stakes of an outside entity via market buying, private ordering, or stock exchange, inferring a long-term income in the outside entity.

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      Eligibility Standards For Outbound Investment Under FEMA

      Under the automatic route, a FEMA goes beyond ODI to make an Indian Party.

      • Firm
      • Business under the Partnership Act, 1932
      • LLP under the LLP Act 2008

      Any additional commodity or joint parties – When 1 or more firms, organizations, or entities capitalize on an outside Joint Venture (JV)” or “Wholly Owned Subsidiary

      Documents Required For Outbound Investment

      • Form ODI.
      • Authorized Certificate of the Board Resolution.
      • Statutory Auditors certificate.
      • Valuation document.
      • Form ODI Part II – List of remittances to be deferred to AD Bank to Reserve Bank of India.
      • Form ODI Part III – Yearly Growth Report (YGR) – which must be approved by Statutory Auditors, with the appointed AD Category– I bank all financial year.
      • Form ODI Part IV – Can deliver for listing the closure /decapitalized/ automatic liquidation, revolving around the joint Ventures/Wholly Owned Subsidiaries foreign.
      • Yearly Return on Outside Liabilities and Assets.

      Process For Outbound Investment Under FEMA

      As an Indian Party trying to create an ODI as per automatic route is needed to submit the form, which is endorsed by the copies mentioned therein,

      • An approved copy of the Board Resolution
      • Statutory Auditors Certificate
      • Valuation report as per the valuation standards documented
      • Authorized Dealer for investing/remittance.

      The valuation standards are: (Valuation Norms)

      1. Although, if the assets are more than $5 million, then the valuation shall be expected.

      2. Where there is the presence or full gain of an existing foreign firm where the capital gain is more than $5 million then the share valuation of the firm has to be done by:-

      • Class, I Merchant Banker enroll with the SEBI Securities and Exchange Board of India.
      • OR an Investment Banker/ Merchant Banker, away from India need to enroll with the proper regulatory authority of the host country
      • In some places, it could be possible by a CA or Verified Public Accountant.

      3. The RBI offers a master direction on direct investment by the resident in a JV/WOS foreign.

      If an, AD bank lags to deliver an adequate response, a plea can be generated, providing the whole facts of the ongoing scenario, to the RBIs Central Office with the AD bank at the subsequent address:

      The Chief General Manager

      Reserve Bank of India

      Foreign Exchange Department

      Overseas Investment Division

      Central Office, Amar Building, 5th Floor

      Mumbai 400 001

      Under FEMA we have two routes for making a Outbound investment:

      • Automatic Route
      • Approval Route

      Automatic Route

      Beneath the automatic route, the Indian party doesn’t require prior permission from the Reserve Bank of India. A person should reach out to the AD Banks with the required ODI Form, along with the mandatory documents to talk about the settlement.

      Whether there is a transaction of funds, permission is needed from the finance committee. ODI form is accessible in the master direction for abroad trade management. Although, fever transactions that haven’t come under the automatic route, come under the approval route.

      Approval Route

      The applicant should visit their appointed AD Banks with the plan which shall be accepted by Reserve Bank after due examination and with the certain recommendations of the appointed AD bank along with required documents to the particular address:

      The Chief General Manager,

      Reserve Bank of India,

      Foreign Exchange Department,

      Overseas Investment Division,

      Amar Building, 5th Floor,

      Sir P. M. Road, Fort,

      Mumbai 400001.

      The appointed AD has to update the whole form online via the OID website. Although in any circumstances the documentation gets validated, the AD bank must conduct the settlement under the guidance of the RBI so that the UIN (Unique Identification Number) is required.

      For the approval by Reserve Bank, the essential documents require to be introduced along with Section D and E of form outside direct investment – Part I by the assigned Authorized Dealer:

      1. A letter from the appointed AD in a closed cover speaking of the essential details:
      • Transaction No obtains from OID application.
      • Entire features of the Indian commodity.
      • Abrupt facts of the foreign commodity.
      • An environment of the proposal.
      • Complete details of the transaction
      • Explanations for requesting approval, referring to the actual FEMA provisions.

      Statements of the appointed AD bank concerning the following :

      • Prima facie viability of the JW/WOS away from India;
      • Assistance to outside trade and additional benefits which will arise to India through such investment;
      • Economic standpoint and company past performance of IP & abroad merchandise;
      • Mastery and knowledge of the IP in the similar or relevant line of activity of the joint Ventures/ Wholly Owned Subsidiaries outside India.
      • Recommendation of the appointed Authorized dealer bank.
      1. A letter that signifies the AD bank.
      2. Board outcome for the presented transaction.
      3. Graphical representation of the business structure implies all the subordinates of the IP horizontally and vertically with their share (explicit & implicit) and importance. This is vital to give detailed clarifications, but in any circumstances, if there is another opinion.
      4. Business certificate and the valuation certificate for the foreign entity.
      5. Additional relevant papers which exactly numbered, indexed, and subsided.

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        Conclusion

        If you are looking to make an outbound investment in India, you need to consider all the aspects of it, which follows rules & regulations of the host country. To know more about the Outbound Investment, we are ODINT Consultancy, here we are to help you out in each & every step of yours.

        FAQ’s

        Native corporates and partnership companies enrolled under the Indian     Partnership Act, 1932 are capable to do investing in foreign JV/WOS.

        An Indian firm can make a Foreign investment in any way; But, for considering such activities in the economic sector, a few additional factors have to be taken into.

        The real estate area & Banking are the forbidden areas for foreign investment.

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