The Finance Ministry on Monday released the Foreign Exchange Management (Overseas Investment) Rules, 2022 subsuming extant regulations for Overseas Investments and Acquisition and Transfer of Immovable Property Outside India Regulations, 2015.
With an eye on wilful defaulters, the new rules stipulate that any Indian resident who has an account appearing as a non-performing asset; or is classified as a wilful defaulter by any bank; or is under investigation by a financial service regulator or by investigative agencies in India, will have to seek an no objection certificate before making any overseas financial commitment.
What are the tweaks in overseas investment norms?
Any resident in India acquiring equity capital in a foreign entity or overseas direct investment (ODI), will have to submit an Annual Performance Report (APR) for each foreign entity, every year by December 31. No such reporting shall be required where a person resident in India is holding less than 10% of the equity capital without control in the foreign entity and there is no other financial commitment other than equity capital or a foreign entity is under liquidation.
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Any resident individual can make ODI by way of investment in equity capital or overseas portfolio investment (OPI) subject to the overall ceiling under the Liberalised Remittance Scheme (LRS) of the Reserve Bank. Currently, the LRS permits $2,50,000 outward investment by an individual in a year.
The Finance Ministry said these norms make it easier for domestic corporates to invest abroad.
“In view of the evolving needs of businesses in India, in an increasingly integrated global market, there is a need of Indian corporates to be part of the global value chain. The revised regulatory framework for overseas investment provides for simplification of the existing framework for overseas investment and has been aligned with the current business and economic dynamics,” the Finance Ministry statement said.
Clarity on Overseas Direct Investment and Overseas Portfolio Investment has been brought in and various overseas investment related transactions that were earlier under approval route are now under automatic route, significantly enhancing “ease of doing business”, it said. Last year, the government of India, in consultation with the Reserve Bank, undertook a comprehensive exercise to simplify these regulations.
With regard to corporates, the notification said, an Indian entity can make OPI not exceeding 50% of its net worth as on the date of its last audited balance sheet.
ESOPs have been permitted for Indian employees in foreign parent or subsidiary of Indian parent. Gift of foreign securities permitted from a non-resident to any resident, subject to FCRA compliance, currently gift is permitted only to a relative, AKM Global Tax Partner Amit Maheshwari said.
What are the prohibitions for overseas investments?
Any Indian resident, who has been classified as a wilful defaulter or is under investigation by the CBI, the ED or the Serious Frauds Investigation Office (SFIO), will have to obtain a no-objection certificate (NOC) from his or her bank, regulatory body or investigative agency before making any overseas “financial commitment” or disinvestment of overseas assets.
The rules also provide that if lenders, the concerned regulatory body or investigative agency fail to furnish the NOC within 60 days of receiving an application, it may be presumed that they have no objection to the proposed transaction.
Additionally, the new rules also prohibit Indian residents from making investments into foreign entities that are engaged in real estate activity, gambling in any form, and dealing with financial products linked to the Indian rupee without the specific approval of the RBI.