Foreign Exchange Management (Overseas Investment) Rules, 2022: In a bid to promote ease of doing business, the Finance Ministry of Finance (MoF) recently released the Foreign Exchange Management (Overseas Investment) Rules, 2022.
Key Points:
- The Foreign Exchange Management (Overseas Investment) Rules will subsume extant regulations for Overseas Investments and Acquisition and Transfer of Immovable Property Outside India Regulations, 2015.
- Currently, the overseas investment by a person resident in India is governed by 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.
- The new rules seek to bring in many changes that could impact the acquisition and merger decisions of Indian residents, including startups and corporates.
- As per the Finance Minister Nirmala Sitharaman, the revised regulatory framework for overseas investment simplifies the existing overseas investment framework and aligns with the present economic and business dynamics.
- The Government of India (GoI) in consultation with the Reserve Bank undertook a comprehensive exercise to simplify these regulations.
- The "Ease of Doing Business" has been significantly improved owing to the addition of clarity regarding overseas direct investment and overseas portfolio investment, along with the transition of several overseas investment-related transactions that were previously approved to automated route.
Key Features:
With an eye towards deliberate defaulters, the new regulations state that any Indian resident -
- who has an account appearing as a non-performing asset; or
- who is classified as a willful defaulter by any bank; or
- who 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.
- 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.
- 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 (International Financial Services Centre) by person resident in India (Schedule V).
- RBI has framed these Regulations under FEMA ( Foreign Exchange Management Acy) 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.
Overseas Investment Rules and Regulations, 2022 can be accessed at:
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