ODI Compliance Guide for Indian Companies Investing Abroad — FEMA and RBI Requirements

Outward Direct Investment (ODI) is one of the most under-managed compliance areas for Indian companies expanding abroad. The Foreign Exchange Management (Overseas Investment) Rules and Regulations, 2022 (replacing the older FEMA Notification 120) prescribe what is allowed, how to file, and what happens if you don't.

1. What qualifies as ODI?

ODI is investment by an Indian entity in a foreign entity by way of:

• Subscription to equity or compulsorily convertible instruments
• Capital contribution or profit share in an overseas JV/WOS
• Loan to the overseas entity (if certain conditions are met)
• Guarantee issued on behalf of the overseas entity (counted at 100% of the amount guaranteed)

Purchase of less than 10% equity with no control is treated as Overseas Portfolio Investment (OPI) — separate rules.

2. Automatic route vs approval route

• Automatic route: aggregate financial commitment up to 400% of net worth (as per the latest audited balance sheet of the Indian entity). The 400% includes equity + loan + 100% of guarantees + 50% of performance guarantees.
• Approval route: required if the limit is exceeded, or for investment in financial services (unless the Indian entity itself is a regulated financial-services entity), or for restricted jurisdictions / sectors.
• Investment in real estate as defined under the OI Rules is prohibited under both routes.

3. Filing process

• Open file with an AD Category-I bank; obtain a Unique Identification Number (UIN) for the overseas entity.
• File Form FC (Foreign Currency) at the time of each remittance.
• Submit share certificates / proof of allotment within 6 months of remittance.
• Maintain documentation: board resolution, valuation report by CA / merchant banker, statutory auditor's certificate.

4. Annual Performance Report (APR)

For every overseas entity in which the Indian entity holds 10% or more equity (or control), an APR must be filed annually by 31 December through the AD bank. The APR carries audited financials of the overseas entity, repatriations received during the year and stake details — including step-down subsidiaries. Non-filing of APR is the most common ODI default we see.

5. Repatriation requirements

• Dividends, royalty and technical fee dues from the overseas entity must be repatriated within 90 days of being due.
• On disinvestment, sale proceeds must be repatriated within 90 days of receipt.

6. Penalties

FEMA penalties can reach up to 3x the amount involved in the contravention, plus Rs5,000/day for continuing offences. Compounding is available with the RBI — early voluntary disclosure significantly reduces the quantum.

7. Common mistakes

• Missing APR deadlines or filing only for the immediate overseas subsidiary and ignoring step-downs.
• Issuing a guarantee without adding it to the 400% financial commitment computation.
• Loans without complying with the 'eligible debt' conditions.
• Not maintaining valuation evidence at the time of investment / disinvestment.

Our global expansion advisory handles ODI structuring, UIN setup, FC filings and APR cycle for Indian companies expanding overseas.

Frequently Asked Questions