The Ministry of Finance Notified Foreign Exchange Management (Overseas Investment) Rules 2022
The Ministry of Finance, Department of Economic Affairs on 22nd August 2022 notified the consolidated rules for overseas investment by Indian entities to promote ease of doing business. These rules are called The Foreign Exchange Management (Overseas Investment) Rules, 2022 (“Rules”) and they will supersede regulations relating to the Overseas Investments and Acquisition and Transfer of Immovable Property Outside India Regulations, 2015.
The intention behind passing the new Rules is to revise the regulatory framework for overseas investment in order to simplify the existing overseas investment framework and align the same with the present economic and business subtleties of the country. With the consolidated overseas investment rules, the government has provided clarity to overseas portfolio investment and overseas direct investment enhancing the ease of doing business.
Some of the key highlights of Rules are as under:
- The Rules shall not apply to:
- any investment made outside India by a financial institution in an IFSC (“International Financial Services Centre”);
- acquisition or transfer of any investment outside India made:
- out of Resident Foreign Currency Account; or
- out of foreign currency resources held outside India by a person who is employed in India for a specific duration irrespective of length thereof or for a specific job or assignment, duration of which does not exceed three years; or
- by a person when he was resident outside India or inherited from a person resident outside India
- Rules prohibit any person resident in India from making any investment in a foreign entity engaged in:
- Real estate activity
- Gambling in any form
- Dealing in financial products linked to the Indian rupee without specific approval of the Reserve Bank.
- Financial commitment is prohibited in a foreign entity if it results in having two layers of subsidiaries.
- Rules specify that any ODI (“Overseas Direct Investment”) in start-ups recognized under the laws of the host country, shall be made by an Indian entity only from the internal accruals.
- The Rules also state that an authorized dealer bank (“AD Bank”), including an overseas branch, can acquire or transfer foreign securities according to the terms of the host jurisdiction or host country in the ordinary course of its banking business.
- Under the Rules, a person resident in India whose account has been classified as NPA or is declared a willful defaulter by any bank or regulatory body or investigative agency is required to obtain NOC from the concerned bank/ regulatory body or investigative agency before making any financial commitment or undertaking disinvestment.
The complete text of the Rules may be viewed at the below link:
Last updated: 07/09/2022
Article contributed by:
Associate – Legal