With Indian businesses increasingly expanding across international markets, investing in foreign companies has become more common than ever. Entrepreneurs, startups, listed companies, LLPs, and resident individuals are establishing overseas subsidiaries, acquiring foreign businesses, and entering global joint ventures.
To simplify and modernize overseas investment regulations, the Government of India and the Reserve Bank of India (RBI) introduced the Overseas Investment Rules, 2022, replacing the older Overseas Direct Investment (ODI) framework. These rules continue to govern overseas investments in 2026, along with updated operational directions and RBI reporting requirements.
This guide explains the new ODI rules, who can invest abroad, permissible investment structures, compliance requirements, and common mistakes businesses should avoid.
Overseas Direct Investment (ODI) refers to an investment made by an Indian resident in the equity capital or eligible instruments of a foreign entity with the intention of acquiring a strategic or long-term interest.
Unlike portfolio investments, ODI generally involves participation in the ownership, management, or control of an overseas business.
Indian businesses use ODI to:
✔ Expand into international markets
✔ Acquire overseas companies
✔ Establish foreign subsidiaries
✔ Set up manufacturing facilities abroad
✔ Access global customers
✔ Diversify business operations
✔ Strengthen international presence
Subject to applicable FEMA and RBI regulations, ODI may generally be undertaken by:
✔ Indian Companies
✔ Limited Liability Partnerships (LLPs)
✔ Registered Partnership Firms (where permitted)
✔ Resident Individuals
✔ Resident Trusts (subject to applicable conditions)
Each category has separate eligibility criteria and compliance requirements.
The present overseas investment regime is governed by:
The framework classifies overseas investments into different categories and introduces a clearer compliance structure.
The new framework distinguishes between:
Generally involves:
✔ Strategic investment
✔ Control or significant ownership
✔ Long-term business interest
Typically involves:
✔ Passive investment
✔ Listed securities
✔ No management control
Understanding the distinction is essential because different compliance rules apply.
Common structures include:
The Indian company owns 100% of the foreign entity.
Ownership is shared with one or more foreign partners.
Indian companies acquire shares in an established foreign company.
Investment in newly incorporated foreign entities.
Under the ODI framework, an Indian entity's financial commitment may include:
✔ Equity contribution
✔ Compulsorily convertible preference shares (where permitted)
✔ Compulsorily convertible debentures (where permitted)
✔ Eligible debt or guarantees, subject to the rules
The total financial commitment must remain within the limits prescribed under the applicable regulations.
Resident individuals may also make overseas investments, subject to applicable FEMA provisions and the Liberalised Remittance Scheme (LRS) where relevant.
Investments can include:
✔ Shares of foreign operating companies
✔ Overseas startups
✔ Foreign wholly owned entities (where permitted)
The investment must comply with RBI regulations and reporting requirements.
Businesses making ODI should generally ensure:
✔ Board approvals
✔ Proper valuation (where required)
✔ FEMA compliance
✔ Banking through Authorized Dealer (AD) Bank
✔ RBI reporting
✔ Statutory documentation
ODI transactions are routed through an Authorized Dealer Category-I Bank.
The AD Bank generally assists with:
✔ Processing remittances
✔ Reviewing documentation
✔ FEMA reporting
✔ Regulatory compliance
Maintaining a single designated AD Bank for ODI transactions is a common practice.
Depending on the transaction, documentation may include:
✔ Board Resolution
✔ Share Purchase Agreement
✔ Valuation Report
✔ Financial Statements
✔ Incorporation documents of the foreign entity
✔ KYC of the overseas entity
✔ Business plan
✔ Statutory declarations
Additional documents may be required depending on the investment structure.
ODI is not limited to making the investment.
Indian investors are also required to comply with ongoing reporting obligations, which may include:
✔ Initial investment reporting
✔ Annual Performance Report (APR), where applicable
✔ Reporting of restructuring or disinvestment events
✔ Other FEMA-related filings
Timely reporting is critical to remain compliant.
Certain overseas investments require valuation by an eligible valuer, particularly in cases involving:
✔ Acquisition of existing foreign companies
✔ Transfer of shares
✔ Disinvestment
Valuation norms help ensure that transactions are conducted on a fair and transparent basis.
ODI may be funded through permitted sources such as:
✔ Internal accruals
✔ Foreign exchange balances
✔ Eligible remittances
✔ Other sources permitted under FEMA
The funding route depends on the category of investor and the nature of the transaction.
ODI regulations prohibit or restrict investments in certain sectors and activities.
Investors should ensure that the overseas business activity is permissible under Indian regulations and is lawful in the host country.
Professional advice is recommended before proceeding with sector-specific investments.
Businesses frequently encounter issues such as:
❌ Making overseas investments without evaluating FEMA eligibility
❌ Delayed RBI reporting
❌ Incomplete valuation documentation
❌ Using multiple AD Banks without proper coordination
❌ Ignoring Annual Performance Report obligations
❌ Incorrect classification between ODI and OPI
Such errors can lead to regulatory scrutiny and delays.
✔ Assess ODI eligibility before investing
✔ Prepare a detailed investment structure
✔ Obtain professional tax and FEMA advice
✔ Maintain complete documentation
✔ Track ongoing reporting deadlines
✔ Coordinate closely with the designated AD Bank
✔ Review host-country legal and tax requirements
Before making an overseas investment, businesses should also evaluate:
✔ Double Taxation Avoidance Agreements (DTAAs)
✔ Withholding tax implications
✔ Controlled Foreign Company (CFC) considerations in relevant jurisdictions
✔ Transfer Pricing rules for future transactions
A tax-efficient structure can reduce long-term compliance costs.
The Overseas Investment Rules, 2022 have created a more structured and transparent framework for Indian residents investing abroad. Whether establishing a wholly owned subsidiary, acquiring an overseas company, or entering a joint venture, businesses must comply with FEMA regulations, RBI reporting requirements, and applicable tax laws.
Careful planning, robust documentation, and timely compliance not only help avoid regulatory issues but also enable Indian businesses to expand globally with confidence.
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