ODI Investment for FEMA compliances, Valuation, Report and APR Filing

ODI Investment for FEMA compliances, Valuation, Report and APR Filing. As Indian companies including private limited companies or startups recognized under DPIIT, grow in size and by idea, expanding globally has become more than just an opportunity—it's a strategic move. Whether it’s setting up an overseas wholly owned subsidiary (WOS) in the United Kingdom, forming a joint venture (JV) in the United States, or acquiring stakes in overseas companies across the world, Indian companies and individuals are increasingly looking outward and subject to Foreign Exchange Management Act (FEMA), 1999, FDI policy  and is formally termed as Overseas Direct Investment (ODI) compliances. 
ODI allows Indian Resident Individuals (RI) and Indian Entities (Companies, Firms, LLPs) to invest in foreign entities by acquiring equity shares or capital contribution by subscribing to their Memorandum of Association/Charter, or participating in international joint ventures. However, such investments must follow the prescribed ODI Rules and Regulations notified by the Reserve Bank of India (RBI) and routed through Authorized Dealer (AD) Banks subject to the Valuation Report as per FEMA. Through this article we will take you through how Indian investors—both corporates and individuals—can make FEMA-compliant overseas investments in jurisdictions such as the UK, USA, Singapore, and other global business hubs. From eligibility and valuation requirements to remittance limits, reporting formats, and post-investment compliance, we’ll break down everything you need to know to plan your overseas venture seamlessly.
What is ODI and FDI?

Foreign Direct Investment (FDI): Investment made by non-residents in the equity capital of an Indian company.

Overseas Direct Investment (ODI): Investment made by Indian residents (Individuals or Entities) in foreign companies through equity participation through overseas setting up business, either as a Wholly Owned Subsidiary (WOS) or a Joint Venture (JV).

ODI Under FEMA
ODI is a capital account transaction under FEMA and involves alteration of assets/liabilities outside India. Investments abroad can be routed through:

Liberalized Remittance Scheme (LRS): For Resident Individuals, with a cap of USD 250,000 per financial year.

OI Rules (Amended August 2022): For Indian Entities (Companies, Firms, LLPs), with a limit of 400% of the net worth as per the latest audited balance sheet.

Modes of ODI Investment
Indian residents can invest in foreign entities through:

Subscription to Memorandum of Association (MoA) or Charter

Acquisition of unlisted foreign equity

Purchase of more than 10% in listed foreign entities

Rights/bonus issues, ESOPs, sweat equity

Capitalization of dues, gift/inheritance

Swap of securities or merger/demerger schemes

Prohibited Activities for ODI
ODI is not permitted in foreign entities engaged in:

Real estate trading

Gambling or betting

Dealing with financial products linked to Indian Rupee without RBI approval

Is a Valuation Report Required for ODI?
Yes, but not in all cases:

Valuation Report Not Required: For initial subscription to the MoA/Charter of the foreign company.

Valuation Report Required: For subsequent investments in share capital. A valuation report must be prepared by a Chartered Accountant (CA) or Merchant Banker to establish the arm’s length pricing for equity.

Validity of Valuation Report under FEMA: Once a valuation report is issued, the corresponding share issuance or transfer must be completed within 90 calendar days. If the transaction is not executed within this period, the valuation becomes invalid, and a fresh valuation will be required
What is an ODI transaction ?
ODI transactions must be reported to the RBI through the Authorized Dealer (AD) Bank using prescribed forms and documentation:

Form FC (Section A to E): Must be submitted before making the remittance or financial commitment.

Form A2 and Other Bank-specific Documents

Deferred Payment Agreement: If applicable

Valuation Certificate: For additional/subsequent investments

Share Certificate: To be submitted within 180 days from the remittance

Post-ODI Compliance Requirements

Annual Performance Report (APR) Filing-

APR Filing Must be filed with AD Bank by December 31 every year.

Audited Financials of the foreign entity are mandatory.

Foreign CPA or Indian CA may audit depending on AD bank preference.

Foreign Liabilities and Assets Return (FLA):

FLA Return To be filed annually by July 15 on the RBI FLAIR Portal.

Applies to Indian entities with FDI or ODI in the previous financial year.

Repatriation Requirements: Sale proceeds, liquidation income, or dividends must be repatriated within 90 days of becoming due.

Change in Shareholding or Disinvestment: Must be reported to the AD Bank within specified timelines.

Routes of ODI Investment
1. Automatic Route 
No prior approval is required from RBI, provided the investment is within prescribed limits and not in prohibited sectors.
2. Approval Route 
Used when:

The investment exceeds the prescribed limits.

The investment is in sectors requiring specific approval.

Indian entities with overdue financial commitments wish to make new investments.

ODI Documentation Checklist

Document

Purpose

Form FC

Main form for reporting ODI transaction

Form A2

Required for outward remittance

Valuation Report

For non-initial equity investments

Deferred Payment Agreement

If payment terms are deferred

Share Certificates

Proof of investment, submitted within 180 days

APR Form

Annual performance review of foreign entity

FLA Return

Statement of overseas assets/liabilities

Auditor Certificate

For validating foreign entity's financials (CPA/CA)

FEMA Principles for ODI

What cannot be done directly, cannot be done indirectly: Indirect structuring to bypass ODI rules will result in FEMA violations and penalties like in case of gift etc.

Due diligence and documentation are very important to avoid penalties and late submission fees (LSF) by RBI.

ODI transaction is a strategic way for Indian companies /LLP or individuals to expand their footprint globally by overseas investment. However, it comes with significant compliance and regulatory responsibilities under FEMA. From choosing the right route and must check valuation compliance to timely reporting through the AD Bank, every step must be carefully planned.

As Indian companies including private limited companies or startups recognized under DPIIT, grow in size and by idea, expanding globally has become more than just an opportunity—it's a strategic move. Whether it’s setting up an overseas wholly owned subsidiary (WOS) in the United Kingdom, forming a joint venture (JV) in the United States, or acquiring stakes in overseas companies across the world, Indian companies and individuals are increasingly looking outward and subject to Foreign Exchange Management Act (FEMA), 1999, FDI policy and is formally termed as Overseas Direct Investment (ODI) compliances.

ODI allows Indian Resident Individuals (RI) and Indian Entities (Companies, Firms, LLPs) to invest in foreign entities by acquiring equity shares or capital contribution by subscribing to their Memorandum of Association/Charter, or participating in international joint ventures. However, such investments must follow the prescribed ODI Rules and Regulations notified by the Reserve Bank of India (RBI) and routed through Authorized Dealer (AD) Banks subject to the Valuation Report as per FEMA. Through this article we will take you through how Indian investors—both corporates and individuals—can make FEMA-compliant overseas investments in jurisdictions such as the UK, USA, Singapore, and other global business hubs. From eligibility and valuation requirements to remittance limits, reporting formats, and post-investment compliance, we’ll break down everything you need to know to plan your overseas venture seamlessly.

What is ODI and FDI?

Foreign Direct Investment (FDI): Investment made by non-residents in the equity capital of an Indian company.
Overseas Direct Investment (ODI): Investment made by Indian residents (Individuals or Entities) in foreign companies through equity participation through overseas setting up business, either as a Wholly Owned Subsidiary (WOS) or a Joint Venture (JV).

ODI Under FEMA

ODI is a capital account transaction under FEMA and involves alteration of assets/liabilities outside India. Investments abroad can be routed through:

Liberalized Remittance Scheme (LRS): For Resident Individuals, with a cap of USD 250,000 per financial year.
OI Rules (Amended August 2022): For Indian Entities (Companies, Firms, LLPs), with a limit of 400% of the net worth as per the latest audited balance sheet.

Modes of ODI Investment

Indian residents can invest in foreign entities through:

Subscription to Memorandum of Association (MoA) or Charter
Acquisition of unlisted foreign equity
Purchase of more than 10% in listed foreign entities
Rights/bonus issues, ESOPs, sweat equity
Capitalization of dues, gift/inheritance
Swap of securities or merger/demerger schemes

Prohibited Activities for ODI

ODI is not permitted in foreign entities engaged in:

Real estate trading
Gambling or betting
Dealing with financial products linked to Indian Rupee without RBI approval

Is a Valuation Report Required for ODI?

Yes, but not in all cases:

Valuation Report Not Required: For initial subscription to the MoA/Charter of the foreign company.
Valuation Report Required: For subsequent investments in share capital. A valuation report must be prepared by a Chartered Accountant (CA) or Merchant Banker to establish the arm’s length pricing for equity.

Validity of Valuation Report under FEMA: Once a valuation report is issued, the corresponding share issuance or transfer must be completed within 90 calendar days. If the transaction is not executed within this period, the valuation becomes invalid, and a fresh valuation will be required

What is an ODI transaction ?

ODI transactions must be reported to the RBI through the Authorized Dealer (AD) Bank using prescribed forms and documentation:

Form FC (Section A to E): Must be submitted before making the remittance or financial commitment.
Form A2 and Other Bank-specific Documents
Deferred Payment Agreement: If applicable
Valuation Certificate: For additional/subsequent investments
Share Certificate: To be submitted within 180 days from the remittance

Post-ODI Compliance Requirements

Annual Performance Report (APR) Filing-

APR Filing Must be filed with AD Bank by December 31 every year.
Audited Financials of the foreign entity are mandatory.
Foreign CPA or Indian CA may audit depending on AD bank preference.

Foreign Liabilities and Assets Return (FLA):

FLA Return To be filed annually by July 15 on the RBI FLAIR Portal.
Applies to Indian entities with FDI or ODI in the previous financial year.

Repatriation Requirements: Sale proceeds, liquidation income, or dividends must be repatriated within 90 days of becoming due.
Change in Shareholding or Disinvestment: Must be reported to the AD Bank within specified timelines.

Routes of ODI Investment

1. Automatic Route

No prior approval is required from RBI, provided the investment is within prescribed limits and not in prohibited sectors.

2. Approval Route

Used when:

The investment exceeds the prescribed limits.
The investment is in sectors requiring specific approval.
Indian entities with overdue financial commitments wish to make new investments.

ODI Documentation Checklist

Document	Purpose
Form FC	Main form for reporting ODI transaction
Form A2	Required for outward remittance
Valuation Report	For non-initial equity investments
Deferred Payment Agreement	If payment terms are deferred
Share Certificates	Proof of investment, submitted within 180 days
APR Form	Annual performance review of foreign entity
FLA Return	Statement of overseas assets/liabilities
Auditor Certificate	For validating foreign entity's financials (CPA/CA)

FEMA Principles for ODI

What cannot be done directly, cannot be done indirectly: Indirect structuring to bypass ODI rules will result in FEMA violations and penalties like in case of gift etc.
Due diligence and documentation are very important to avoid penalties and late submission fees (LSF) by RBI.