Overseas Direct Investment (ODI) from India, filed right.
Setting up a foreign subsidiary, buying a stake abroad, or catching up on missed APRs - we structure the overseas direct investment, prepare the Form FC file for your AD bank, get the UIN in place and keep the yearly ODI compliance on time. Clear routes, the real limits, no surprises at the bank.
Indian money going into a foreign company the ODI rules apply.
Overseas direct investment (ODI) is the route under FEMA by which an Indian company, LLP or resident individual puts money into a business abroad and holds it as a lasting stake. Since August 2022 it runs under three documents: the Foreign Exchange Management (Overseas Investment) Rules, 2022 issued by the Central Government, the Overseas Investment Regulations, 2022 issued by the RBI, and the RBI Master Direction - Overseas Investment that tells banks how to apply them. Your bank (the authorised dealer, or AD bank) handles almost every case. The RBI sees only the exceptions.
Indian companies opening a foreign subsidiary
A private or listed Indian company setting up a wholly owned subsidiary abroad, or taking a stake in a joint venture with a foreign partner, to sell, source or hire in that market.
Founders flipping or going global
Founders who want a US, Singapore, UK or UAE company on top of or beside the Indian one. The structure decides whether the money moves as ODI by the Indian company or under LRS by the founder.
Foreign company incorporationResident individuals buying a stake abroad
Indian residents investing personally in an operating foreign business. This is allowed, but inside the LRS limit and with tighter conditions than a company gets.
Groups with existing foreign entities
Businesses that already own something abroad and need the annual filings caught up, a restructuring reported, or an exit and the money brought back.
First question: is this a direct investment or a portfolio one.
The 2022 rules split overseas investment into two kinds. Which side you fall on decides the forms, the limits and who can invest. Once an investment is classed as ODI, it stays ODI, even if the stake later drops.
| Point | Overseas direct investment (ODI) | Overseas portfolio investment (OPI) |
|---|---|---|
| What counts | Any stake in an unlisted foreign company; subscribing to its memorandum; 10 percent or more of a listed foreign company; or less than 10 percent of a listed company where you have control | Investment in foreign securities that is not ODI, such as less than 10 percent of a listed company without control |
| Control | Right to appoint a majority of directors or to control management or policy decisions, including through 10 percent or more of voting rights under an agreement | No control |
| Main filing | Form FC to your AD bank, then the Annual Performance Report and the FLA return | Form OPI, filed half-yearly by investors other than individuals |
| Typical case | A wholly owned subsidiary or JV abroad | A treasury holding in listed foreign shares |
Debt to a foreign entity in which you already hold ODI, and guarantees given for it, also count towards your financial commitment. The facts of each deal decide the class - this table is a starting point, not an opinion.
Most ODI needs no RBI approval but it does need the limits right.
Under the automatic route your AD bank processes the investment once the conditions are met. The approval route applies where a case falls outside them, and it goes through your AD bank to the RBI. An approval is never assured, so we plan the structure to stay inside the automatic route wherever the business allows.
The 400 percent of net worth cap
An Indian entity's total financial commitment to all its foreign entities - equity, debt and guarantees together - may not exceed 400 percent of its net worth as per its last audited balance sheet. Anything above needs approval.
The USD 1 billion yearly check
Under the current RBI Master Direction, a financial commitment above USD 1 billion in a financial year needs prior RBI approval even if it sits within the 400 percent cap.
Individuals: inside LRS only
A resident individual can make ODI only in an operating foreign company that is not in financial services and has no subsidiary or step-down subsidiary where the individual has control. The money counts against the LRS limit of USD 2,50,000 per financial year, which is for individuals only - companies cannot use LRS.
USA company registrationStrategic sectors
The rules name energy and natural resources, submarine cable systems and start-ups as strategic sectors, plus any the Central Government adds. The Central Government can permit investment in these above the normal limits.
Lender or investigation flags
If the Indian investor is a non-performing asset, a wilful defaulter, or under investigation by an agency, a no-objection certificate from the lender, regulator or agency is needed before the AD bank will process it.
Start-ups abroad
ODI into a foreign start-up must come from the Indian entity's internal accruals, or the individual's own funds, not borrowed money. The bank will ask for a certificate from the auditor or a CA to confirm it.
Restrictions that stop deals before the bank does.
The business must be lawful in India and in the host country. On top of that, the rules name specific things ODI may not touch without approval.
| Restriction | What it means in practice |
|---|---|
| Real estate activity | No ODI in buying and selling property or trading in transferable development rights. Building townships, homes, offices, roads or bridges is not caught by this. |
| Gambling | No ODI in gambling in any form. |
| Rupee-linked financial products | No ODI in financial products linked to the Indian rupee without specific RBI approval. |
| Two-layer round-tripping rule | You cannot invest in a foreign entity that has invested, or invests, back into India in a way that creates more than two layers of subsidiaries. Banks, systemically important NBFCs, insurers and government companies are exempt. |
| Pakistan and notified countries | Investment in Pakistan, or in any jurisdiction the Central Government notifies, needs prior Central Government approval. |
| Limited liability | The foreign entity must have limited liability, except where the investment is in a strategic sector. |
The two-layer test looks through the whole chain, including anything the foreign company already owns in India. This is the single most common reason a flip or a holding structure has to be redrawn.
From board resolution to UIN step by step.
This is the usual sequence for an Indian company setting up a wholly owned subsidiary or joint venture abroad under the automatic route. The country pages linked below cover the foreign side of incorporation.
- 01
Check eligibility and the structure
We test the plan against the ODI definition, the 400 percent cap, the restricted activities, the two-layer rule and the start-up funding rule, and decide whether the investment should come from the company or from founders under LRS.
- 02
Board and shareholder approvals
Board resolution for the investment and, where the Companies Act requires it, shareholder approval. We draft these to match exactly what the AD bank will read in the file.
- 03
Valuation and pricing
The rules require the price to be at arm's length. For an acquisition or a stake in an existing company, the AD bank looks for a valuation under an internationally accepted method. For a fresh subsidiary subscribed at face value, the bank will still want the basis shown.
- 04
Incorporate the foreign entity
The company is formed in the chosen country - Delaware, Singapore, the UK, a UAE free zone or elsewhere - with share capital and directors set to match the ODI plan.
- 05
Form FC and the UIN through your AD bank
Form FC (earlier called Form ODI Part I) goes to the AD bank with the supporting documents, on or before the first remittance. The bank obtains a Unique Identification Number (UIN) for the foreign entity. A UIN is a reporting number, not an RBI approval.
- 06
Remit and collect evidence of investment
The money goes through the same AD bank. Share certificates or other proof of investment must be submitted within six months of the remittance. Every later remittance, loan or guarantee is reported at the time it is made.
- 07
Set up the annual calendar
From here the APR and the FLA return come round every year. We put both on the calendar the day the UIN is issued.
The ODI reporting calendar after the money goes.
Most ODI trouble is not the first remittance. It is a missed APR two years later, discovered when the company wants to send more money. All filings go through your AD bank, except the FLA return, which is filed on the RBI's FLAIR portal.
| Filing | When | Notes |
|---|---|---|
| Form FC | At the time of each remittance or commitment, whichever is earlier | Covers equity, debt and guarantees |
| Evidence of investment | Within six months of the remittance | Share certificates or equivalent |
| Annual Performance Report (APR) | By 31 December every year, for each foreign entity | Based on audited accounts; certified by a CA where statutory audit does not apply. Where the foreign accounts close on 31 December, the APR is due by 31 December of the next year. |
| FLA return | By 15 July every year | Annual return on foreign liabilities and assets, filed online on FLAIR |
| Form OPI | Within 60 days of the end of each half-year (September and March) | Portfolio investment by investors other than individuals |
| Disinvestment | Within 30 days of receiving the sale proceeds | Proceeds and other dues must come back to India within 90 days |
| Restructuring | Within 30 days of the restructuring | Mergers, demergers and other changes in the foreign chain |
No APR is needed where you hold less than 10 percent without control and have no other commitment, or where the foreign entity is being wound up. Where several Indian residents invest in the same entity, the one with the largest stake files the APR.
Missed a filing? There is a way back if you use it in time.
The 2022 regime introduced a late submission fee (LSF) for reporting delays. Until a delay is regularised, you cannot make a further financial commitment or transfer in that foreign entity, so a forgotten APR can freeze the next round of funding.
Window of three years
LSF is available for a delay of up to three years from the due date. Older gaps cannot use it and take longer to resolve, so it pays to act early.
How the fee works
For stock filings such as the APR, the FLA return, Form OPI and evidence of investment, the current Master Direction sets a flat fee per return. For flow filings such as Form FC, the fee adds a small percentage of the amount for each year of delay. The bank issues the advice and it must be paid within 30 days.
Fix it before the next remittance
We run a catch-up review: list every remittance since the UIN, match it to the filings made, file what is missing with LSF, and only then plan the next investment.
Ask for a catch-up reviewFEMA is half the job income tax is the other half.
Clearing the AD bank does not settle the tax position. These three points come up on almost every foreign subsidiary of an Indian company.
Place of effective management
If the key management and commercial decisions of the foreign company are in substance taken in India, the company can be treated as tax resident in India. Board meetings, signing authority and where the people actually sit all matter.
Transfer pricing
Sales, services, cost recharges, loans and guarantees between the Indian company and its foreign subsidiary are related-party transactions. They need arm's length pricing, documentation and the annual accountant's report.
Foreign asset disclosure
Resident individuals who hold shares in a foreign company, directly or as a founder, must disclose them in the foreign assets schedule (Schedule FA) of the income tax return, whether or not they earn income from them.
What we see go wrong most often.
| Mistake | What happens | How to avoid it |
|---|---|---|
| Founder pays the foreign company's capital from a personal card or account | The money has left India without the right route or reporting | Decide ODI or LRS first, and remit through the AD bank that holds the file |
| Foreign company later invests back into India | Can breach the two-layer rule and raise round-tripping questions | Map the full chain before the first remittance |
| APR missed because the foreign audit was late | Further remittances blocked until regularised with LSF | Plan the foreign audit timetable around the 31 December deadline |
| Share certificates never sent to the bank | Evidence of investment overdue, LSF applies | Collect them as soon as the shares are issued |
| Loans and guarantees treated as outside ODI | Financial commitment under-reported and the 400 percent test miscounted | Report every loan and guarantee on Form FC when given |
| Foreign company run entirely from India | Risk of Indian tax residence for the foreign company | Give the foreign board real decisions and keep records of them |
One file, from structure to the yearly filings.
- 01
Structure note
A short written note on the route (ODI by the company or LRS by founders), the limits, the restrictions that apply to your facts, and the tax points. You decide with it in hand.
- 02
Bank-ready file
Board papers, valuation where needed, Form FC and the supporting documents, put together the way AD banks review them, so the UIN is not held up by back-and-forth.
- 03
Country-side coordination
We work alongside the incorporation in the chosen country so the foreign share capital, directors and bank account line up with what was reported in India.
- 04
Annual compliance
APR, FLA return, Form FC for each new remittance, and LSF catch-up where something was missed. Transfer pricing and Schedule FA are handled with the Indian tax filings.
- 05
Exit and restructuring
When the foreign entity is sold, merged or closed, we report it within the deadlines and track the proceeds back to India.
Every ODI case turns on its own facts and on how your AD bank reads them. Where approval is needed, the decision rests with the RBI or the Central Government, and no adviser can promise the outcome.
Country guides for the foreign side.
United States
Delaware C-Corp or LLC owned from India, with the ODI or LRS route decided first.
USA company registrationDubai and the UAE
Free zone or mainland company held by an Indian parent or founder.
Dubai company setupSingapore
Private limited company as a regional holding or operating base.
Singapore company registrationTalk it through
Send the plan and the amounts. We reply with the route and the next step.
Contact CA Vraj ChanganiOverseas direct investment questions.
What is overseas direct investment under FEMA?
Overseas direct investment (ODI) is investment by an Indian resident in a foreign entity that is unlisted, or 10 percent or more of a listed foreign entity, or a smaller listed stake with control. It is governed by the Overseas Investment Rules, 2022, the Overseas Investment Regulations, 2022 and the RBI Master Direction - Overseas Investment. Once classed as ODI, it remains ODI.
What changed with the overseas direct investment rules 2022?
The 2022 framework replaced the older 2004 regulations. It split overseas investment into ODI and OPI, defined control, replaced the joint venture and wholly owned subsidiary terms with 'foreign entity', added the two-layer limit for foreign entities investing back into India, and introduced the late submission fee for reporting delays. Most cases are handled under the automatic route through AD banks.
Does overseas direct investment need RBI approval?
Usually not. Most ODI is under the automatic route and is processed by your AD bank. Approval is needed where a case falls outside the conditions, for example a financial commitment above 400 percent of net worth, or above USD 1 billion in a financial year. Those proposals go through the AD bank to the RBI, and approval is never guaranteed.
How does an Indian company set up a wholly owned subsidiary abroad?
Check eligibility and limits, pass the board and any shareholder approvals, get a valuation where needed, incorporate the foreign company, file Form FC with your AD bank to get a UIN, remit the money through that bank, and submit the share certificates within six months. After that the APR and FLA return are due every year.
What is the overseas direct investment limit for Indian companies?
Under the automatic route, an Indian entity's total financial commitment to all its foreign entities may not exceed 400 percent of its net worth as on the date of its last audited balance sheet. Equity, loans and guarantees all count. The current Master Direction also requires prior RBI approval for a commitment above USD 1 billion in a financial year.
Can a resident individual make overseas direct investment from India?
Yes, within the Liberalised Remittance Scheme limit of USD 2,50,000 per financial year. The foreign company must be an operating company, not in financial services, and must not have a subsidiary or step-down subsidiary where the individual has control. Companies cannot use LRS.
What is Form FC and is Form ODI still used?
Form FC is the current form for reporting a financial commitment to a foreign entity, filed with your AD bank, which then obtains the UIN. Under the pre-2022 regime the equivalent was Form ODI Part I. ODI is still the name of the investment route; the reporting forms now are Form FC, the APR, Form OPI and the FLA return.
What happens if the APR or another ODI filing is missed?
A delay of up to three years can be regularised by paying a late submission fee through the AD bank. Until it is regularised, no further financial commitment or transfer can be made in that foreign entity. Older delays cannot use the fee route, so act early.
- ODI vs LRS: Owning a US Company from India Under FEMA
- ODI Reporting: APR, FLA and the Annual Compliance Calendar
- LRS Outward Remittance: The $250,000 Window for Indian Residents
- Where to Incorporate: US, UAE, Singapore or UK for Indian Founders
- India to US Flip Structure: A Founder's Complete Guide
- FEMA Compliance for NRI Founders: What You Can't Afford to Miss
- Vraj Changani - CA, Startup Advisor & IPO Consultant
Planning a foreign subsidiary? Start with the route and the limits.
Send the country, the amount and who will hold the shares. We will tell you whether it is ODI or LRS, what the AD bank will need, and what the yearly filings look like - before any money moves.
WhatsApp +91 88664 48967 - CA Vraj Changani, DRSPV & Associates, Mumbai.