Most Indian promoters set up their Dubai, Singapore or Delaware company first and think about the Reserve Bank afterwards. The Overseas Investment Rules and Regulations of August 2022 made the framework simpler, but they did not make it optional, and the reporting failures are the ones that surface years later at the time of a bank audit, a fund-raise or a sale. This is the sequence, in the order it has to happen.
ODI or OPI?
Overseas Direct Investment is investment in the equity of an unlisted foreign entity, or 10% or more of a listed one, or any investment with control. Overseas Portfolio Investment is investment in listed foreign securities below 10% without control. Setting up or buying into your own foreign company is always ODI. The foreign entity must be engaged in a bona fide business activity, and it must have limited liability (a company or LLC, not a sole proprietorship) unless it is in a strategic sector.
Who can invest and how much
| Investor | Route | Limit |
|---|---|---|
| Indian company or LLP | Automatic route through the AD bank | Total financial commitment (equity, loans and guarantees) up to 400% of net worth per the last audited balance sheet; above USD 1 billion in a year needs RBI approval |
| Resident individual | Automatic route under the Liberalised Remittance Scheme | USD 250,000 per financial year including all other LRS remittances; investment only in equity, no loans or guarantees; no ODI in foreign entities engaged in financial services activity |
| Registered partnership firm | Automatic route | As for companies, by reference to net worth of the firm |
Investment in a foreign entity that itself has, or will have, a subsidiary or investment in India ("round-tripping") is now permitted, but the structure may not exceed two layers of subsidiaries, and the Indian entity at the bottom is subject to the FDI rules in full.
The sequence
- Board resolution (for a company) and a valuation where shares are acquired from an existing shareholder or in a swap; a fresh subscription at par in a new company generally needs no valuation.
- Form FC submitted to the AD bank before the remittance, with the statutory auditor's certificate, the KYC of the foreign entity, and the source of funds. The bank issues the Unique Identification Number (UIN) for the foreign entity — every later remittance and report is tagged to it.
- Remittance through the same AD bank, and only after the UIN.
- Share certificate or other evidence of investment received and submitted to the bank within six months of the remittance.
- Annual Performance Report (APR) in Form APR by 31 December each year, based on the foreign entity's audited accounts for its previous financial year (unaudited accounts are acceptable where the host country does not require an audit and the Indian investor holds less than control, subject to conditions). The APR is also where dividends, loans and guarantees are updated.
- Every change — further investment, a loan to the foreign entity, a guarantee, a change in shareholding — is reported in Form FC within 30 days; a disinvestment is reported within 30 days of receiving the proceeds, and the proceeds must be repatriated within 90 days.
Tax points that travel with the ODI
- Remittances by individuals under LRS attract TCS at 20% above ₹10 lakh a year; it is creditable against Indian tax.
- The foreign company must be run from abroad — see our note on POEM — or its profits become taxable in India.
- Transactions between the Indian and foreign entities are between associated enterprises: transfer pricing documentation and Form 3CEB apply.
- The shareholding is reported in Schedule FA of the Indian promoter's return every year.
The mistakes we are asked to fix
Remitting from a personal account "as a gift" or a "loan to a friend" abroad and using it to fund the company; funding the foreign company by leaving export receivables unpaid or by having a foreign customer pay it directly; forgetting the six-month share certificate deadline; never filing an APR; and issuing a personal guarantee to a UAE bank for the subsidiary's loan without reporting it. Late reporting attracts a Late Submission Fee in place of compounding for delays up to three years; beyond that, or for non-reporting altogether, the route is compounding under FEMA — an application, a fee and a hearing. Neither is fatal, but both are avoidable, and both come up in due diligence when the foreign company is sold or raises capital.
What we handle
The Form FC file, the auditor's certificate, coordination with the AD bank for the UIN, the annual APR and the Schedule FA disclosure — as part of the international setup or as a standalone regularisation for structures already in place. Contact us.
Tax, GST and business setup advisors — Mumbai and Thane. Contact us to discuss your situation.
Related articles
- Setting up in Saudi Arabia from India: MISA licence, ZATCA, Saudization and the regional headquarters programme
- GST Council, 8 October 2026: what the 57th meeting means for small businesses and exporters
- Moving your Web3 company to Dubai: VARA, DMCC, residency and the Indian exit
- Setting up a manpower or recruitment company in the UAE from India