Globalization and improvements in ease of doing business prompted many Indians to set-up a business abroad by opening a branch office or a subsidiary. The benefits include a reduction in cost and import duty, inter alia building a brand internationally. An Indian resident can send the funds abroad for investing through the Liberalized Remittance Scheme (LRS) and Overseas Direct Investment.
Under LRS, resident persons can send up to USD 125,000 per financial year for any permitted capital and current account transactions or a combination of both. They can obtain and hold shares or debt or any other assets/property abroad without prior approval from the RBI. It is useful for setting up Joint Ventures (JV)/ Wholly Owned Subsidiaries (WOS) abroad for business activities within the limit of USD 125,000 subject to terms in FEMA Notification No.263.
The second approach through which the residents can set-up business abroad is through Overseas Direct Investment or Direct Investment outside India (ODI). Per RBI, ODI is done by subscribing to the capital of a New Company set-up abroad or by the purchase of shares of an existing Company abroad. The entity to be set-up can be a Joint venture (JV) or a wholly-owned subsidiary (WOS). Direct investment abroad can be made either by the Automatic Route or the Approval Route. Under the Automatic Route, an Indian company does not need any prior approval from the RBI for making ODI in a JV/WOS abroad.
An Indian company planning to make ODI under the automatic route requires filing an ODI form supported by the documents listed. The listed documents include a certified copy of the Board Resolution, Auditors Certificate, and Valuation report when acquiring an existing company and approach a designated Authorized Dealer for investing/remittance.
Prior consent from RBI is required for items not covered under the automatic route, requiring a specific application through ODI Form with the documents prescribed therein through the Authorized Dealer Category – I banks and sent to RBI. Post establishment of an Indian company will have to comply with the evidence of investment needed by RBI as per rules mandated.
Yearly return on Foreign Liabilities and Assets (FLA) should be submitted by all the Indian companies which received FDI and/or made FDI abroad in the previous year(s) including the current year i.e., the companies holding foreign Assets or Liabilities in their Balance Sheets. Companies must submit FLA returns (mandatory under FEMA) by 15th July based on yearly audited/ unaudited accounts.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.
