Client Update – FEMA Overseas Investment Rules

Introduction

On August 22, 2022, the Department of Economic Affairs, Ministry of Finance notified the Foreign Exchange Management (Overseas Investment) Rules, 2022 (“OI Rules”) under the Foreign Exchange Management Act, 1999 (“FEMA”). Pursuant to the OI Rules, the Reserve Bank of India (“RBI”) issued the Foreign Exchange Management (Overseas Investment) Regulations, 2022 (“OI Regulations”) and the Foreign Exchange Management (Overseas Investment) Directions, 2022 (“OI Directions”) (the OI Rules, the OI Regulations and the OI Directions are collectively referred to as the “New Regime”).

The New Regime supersedes inter alia the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 (“2004 Regulations”), the Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2015 and the Master Direction – Direct Investment by Residents in Joint Venture (“JV”) / Wholly Owned Subsidiary (“WOS”) Abroad dated January 1, 2016 (collectively referred to as the “Old Regime”) and subsumes all other existing rules and regulations governing outbound investments.

Outbound investments in this regard, includes inter alia the following types of transactions by an Indian entity/ resident individual:

• Purchase of shares of a foreign company.
• Setting up of a subsidiary in a foreign country
• Entering into a joint venture with an entity in a foreign country.

Accordingly, set out below is a summary of the key changes introduced by the New Regime: