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New Regime on Overseas Investment

22 Sep 2022

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By amending the regime governing overseas investment, the Indian government has taken a small yet significant step towards addressing the issues faced by Indian corporates and residents investing in global markets. While retaining focus on prevention of money laundering, the regulations have tried to clarify concepts like round tripping, control and deferred consideration which till now were decided by the Reserve Bank of India on a case-to-case basis.
Partners: Kosturi Ghosh and Clarence Anthony, Counsel: Adhunika Premkumar, Associate: Rhythm Chopra


After 11 months of the draft overseas investment rules having been published by the Reserve Bank of India (RBI), the Indian Government, pursuant to discussions with industry players and bodies corporate finally notified on 22 August 2022 the Foreign Exchange Management (Overseas Investment) Rules 2022, the Foreign Exchange Management (Overseas Investment) Regulations, 2022 and the Foreign Exchange Management (Overseas Investment) Directions, 2022 (collectively, the New Regime).

Contrary to the expectations set by the draft rules, the New Regime offers a far more cogent and comprehensive overseas investment framework for Indian corporates and individuals. The Central Government and the RBI have attempted to align the investment framework with the recent trends in the market, including: (i) externalisation of business to foreign locations to attract more investment; (ii) out-bound mergers and acquisitions of foreign companies with Indian subsidiaries; (iii) guarantee, indemnity and deferred consideration; (iv) increased usage of employee stock options and sweat equity to incentivise workforce; and (v) investment in strategic sectors and startups.

The key changes introduced by the New Regime include:

    • introducing definitions of overseas portfolio investment (OPI), overseas direct investment (ODI), control, strategic sector, subsidiary and step-down subsidiary (being the biggest and most consequential change);
    • relaxing the regulations governing round tripping, deferred consideration and investments by Indian corporates in financial services;
    • dispensing with the requirement to obtain RBI approval before issuing guarantees to step down subsidiaries and writing off investments; and
    • focusing on timely reporting while introducing the concept of a late submission fee.

While not delving into the changes themselves, this update highlights the impact of the New Regime on Indian corporates, entities and individuals and provides an insight into the practical challenges they may continue to face.

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