Foreign Exchange Management… — FEMA 400/2022-RB

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Foreign Exchange Management… — FEMA 400/2022-RB | RBI notification · Complied AI

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What changed

The Reserve Bank of India issues the Foreign Exchange Management (Overseas Investment) Regulations, 2022 to govern overseas investments by persons resident in India. An eligible Indian entity may make financial commitments in foreign entities through debt instruments, guarantees, pledges, charges, or deferred payments under specific conditions. Persons resident in India making overseas investment must obtain a Unique Identification Number from the Reserve Bank before sending outward remittances or acquiring equity capital. Investors must submit investment evidence within six months, repatriate all dues within ninety days, and comply with reporting requirements for financial commitments, disinvestments, restructuring, and annual performance reports through a designated authorized dealer bank. Any delay in reporting permits submissions with a late submission fee within a maximum period of three years.

What you must do

Obtain a Unique Identification Number from the Reserve Bank before sending outward remittance or acquisition of equity capital in a foreign entity
Route all transactions relating to a particular UIN through the designated authorized dealer bank
Submit share certificates or relevant documents as evidence of investment within six months from the date of effecting remittance or capitalization
Realise and repatriate to India all dues receivable from the foreign entity within ninety days from the date when such receivables fall due
Submit an Annual Performance Report with respect to each foreign entity every year by 31st December

Key dates

Effective from: 22 Aug 2022
Date of coming into force upon publication in the Official Gazette: 22 Aug 2022

Law this touches

FEMA s. 47

Filings this may affect

Matched on the filing’s own terms in this document. Check that it governs your filing before you act.

+1 more in the compliance calendar

Who is affected

An Indian entity that is eligible to make Overseas Direct Investment
A person resident in India acquiring equity capital in a foreign entity which is reckoned as ODI

Thresholds

In case of performance guarantee, 50 per cent of the amount of guarantee shall be reckoned towards the financial commitment limit

Exceptions

No reporting of Annual Performance Report is required where a person resident in India holds less than 10 per cent of the equity capital without control and there is no other financial commitment
No reporting of Annual Performance Report is required where a foreign entity is under liquidation

If you do not comply

A person resident in India who has made a financial commitment shall not make any further financial commitment or transfer such investment till any delay in reporting is regularised

Ask about this notification

Written automatically from the official document. It is not a professional review, so check material decisions against the official record.

Document text

Prepared for reading; wording retained from the source.

Official PDF

RESERVE BANK OF INDIA (FOREIGN EXCHANGE DEPARTMENT) CENTRAL OFFICE MUMBAI 400 001

No. FEMA 400/2022-RB August 22, 2022

Foreign Exchange Management (Overseas Investment) Regulations, 2022

In exercise of the powers conferred by sub-section (1) and clause (a) of sub-section (2) of section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve Bank hereby makes the following regulations, namely:–

Short title and commencement.– (1) These regulations may be called the Foreign Exchange Management (Overseas Investment) Regulations, 2022. (2) They shall come into force on the date of their publication in the Official Gazette .
Definitions.– (1) In these regulations, unless the context otherwise requires,–

(a) “Act” means the Foreign Exchange Management Act, 1999 (42 of 1999);
(b) “debt instruments” shall have the same meaning as assigned to it in the Foreign Exchange Management (Overseas Investment) Rules, 2022 ;

(2) The words and expressions used but not defined in these regulations shall have the meanings respectively assigned to them in the Act or the Foreign Exchange Management (Overseas Investment) Rules, 2022 .

Financial commitment by Indian entity by modes other than equity capital,– (1) The Indian entity may lend or invest in any debt instrument issued by a foreign entity or extend non-fund based commitment to or on behalf of a foreign entity including overseas step down subsidiaries of such Indian entity subject to the following conditions within the financial commitment limit as prescribed in the Foreign Exchange Management (Overseas Investment) Rules, 2022 :–

the Indian entity is eligible to make Overseas Direct Investment (ODI);
the Indian entity has made ODI in the foreign entity;
the Indian entity has acquired control in such foreign entity at the time of making such financial commitment.

(2) The financial commitments under regulations 4, 5, 6 and 7 shall be reckoned towards the financial commitment limit referred to in sub-regulation (1).

Financial commitment by Indian entity by way of debt.– An Indian entity may lend or invest in any debt instruments issued by a foreign entity subject to the condition that such loans are duly backed by a loan agreement where the rate of interest shall be charged on an arm’s length basis.

Explanation.–– For the purpose of this regulation, the expression “arm’s length” means a transaction between two related parties that is conducted as if they were unrelated, so that there is no conflict of interest.

Financial commitment by way of guarantee.– (1) The following guarantees may be issued to or on behalf of the foreign entity or any of its step down subsidiary in which the Indian entity has acquired control through the foreign entity, namely:–

corporate or performance guarantee by such Indian entity;
corporate or performance guarantee by a group company of such Indian entity in India, being a holding company (which holds at least 51 per cent. stake in the Indian entity) or a subsidiary company (in which the Indian entity holds at least 51 per cent. stake) or a promoter group company, which is a body corporate;
personal guarantee by the resident individual promoter of such an Indian entity;
bank guarantee, which is backed by a counter-guarantee or collateral by the Indian entity or its group company as above, and issued, by a bank in India.

(2) Where the guarantee is extended by a group company, it shall be counted towards the utilisation of its financial commitment limit independently and in case of a resident individual promoter, the same shall be counted towards the financial commitment limit of the Indian entity:

Provided that where the commitment under sub-regulation (1) is extended by a group company, any fund-based exposure to or from the Indian entity shall be deducted from the net worth of such group company for computing its financial commitment limit:

Provided further that where the guarantee under sub-regulation (1) is extended by a promoter, which is a body corporate or an individual, the Indian entity shall be a part of the promoter group.

Explanation.– For the purposes of this sub-regulation, the expression “promoter group” shall have the meaning as assigned to it in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations 2018.

(3) No guarantee shall be open-ended.

(4) The guarantee, to the extent of the amount invoked, shall cease to be a part of the non-fund based commitment but be considered as lending.

(5) Where a guarantee has been extended jointly and severally by two or more Indian entities, 100 per cent. of the amount of such guarantee shall be reckoned towards the individual limits of each of such Indian entities.

(6) In case of performance guarantee, 50 per cent. of the amount of guarantee shall be reckoned towards the financial commitment limit.

(7) Roll-over of guarantee shall not be treated as fresh financial commitment where the amount on account of such roll-over does not exceed the amount of original guarantee.

Financial commitment by way of pledge or charge,– An Indian entity, which has made ODI by way of investment in equity capital in a foreign entity, may––

(a) pledge the equity capital of the foreign entity in which it has made ODI or of its step down subsidiary outside India, held directly by the Indian entity in a foreign entity and indirectly in step down subsidiary, in favour of an AD bank or a public financial institution in India or an overseas lender, for availing fund based or non-fund based facilities for itself or for any foreign entity in which it has made ODI or its step down subsidiaries outside India or in favour of a debenture trustee registered with SEBI for availing fund based facilities for itself;
(b) create charge by way of mortgage, pledge, hypothecation or any other identical mode on–
- its assets in India, including the assets of its group company or associate company, promoter or director, in favour of an AD bank or a public financial institution in India or an overseas lender as security for availing of the fund based or non-fund based facility or both, for any foreign entity in which it has made ODI or for its step down subsidiary outside India; or
- the assets outside India of the foreign entity in which it has made ODI or of its step down subsidiary outside India in favour of an AD bank in India or a public financial institution in India as security for availing of the fund based or non-fund based facility or both, for itself or any foreign entity in which it has made ODI or for its step down subsidiary outside India or in favour of a debenture trustee registered with SEBI in India for availing fund based facilities for itself:

Provided that–

the value of the pledge or charge or the amount of the facility, whichever is less, shall be reckoned towards the financial commitment limit in force at the time of such pledge or charge provided such facility has not already been reckoned towards such limit and excluding cases where the facility has been availed by the Indian entity for itself;
overseas lender in whose favour there is such a pledge or charge shall not be from any country or jurisdiction in which financial commitment is not permissible under the Foreign Exchange Management (Overseas Investment) Rules, 2022 ;
the creation or enforcement of such pledge or charge shall be in accordance with the provisions of the Act or rules or regulations made or directions issued thereunder.

Explanation.– For the purposes of this regulation–

the expression “public financial institution” shall have the same meaning as assigned to it under clause (72) of section 2 of the Companies Act, 2013 (18 of 2013);
the “negative pledge” or “negative charge” created by an Indian entity or a bid bond guarantee obtained in accordance with these regulations for participation in a bidding or tender procedure for the acquisition of a foreign entity shall not be reckoned towards the financial commitment limit referred to in sub-regulation (1) of regulation 3.

Acquisition or transfer by way of deferred payment.– (1) Where a person resident in India acquires equity capital by way of subscription to an issue or by way of purchase from a person resident outside India or where a person resident outside India acquires equity capital by way of purchase from a person resident in India, and where such equity capital is reckoned as ODI, the payment of amount of consideration for the equity capital acquired may be deferred for such definite period from the date of the agreement as provided in such agreement subject to the following terms and conditions, namely:–

the foreign securities equivalent to the amount of total consideration shall be transferred or issued, as the case may be, upfront by the seller to the buyer;
the full consideration finally paid shall be compliant with the applicable pricing guidelines:

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