New ODI rules to boost ease of doing biz, overseas deal making: Experts

NEW DELHI: In a significant move, the new overseas direct investment rules have permitted outbound investments, classified as ‘round-tripping’ under the earlier regime (FDI-ODI structures), without requiring prior RBI approval if the structure involves less than two layers of subsidiaries.

The relaxation is expected to boost overseas deal-making by Indian entities, say experts.

“As per the rules, an Indian entity or an Indian resident individual can hold less than 10 per cent equity in an overseas entity,  holds investment(s) in India up to two layers of subsidiaries, directly or indirectly,” Hemal Mehta, Partner, Deloitte India said.

“Holding less than 10 per cent equity in an overseas entity is inter-alia not considered as a ‘control’ but is classified under ‘portfolio investment’. On a separate note, determining an arm’s length pricing on issue/transfer of the capital of foreign entity may impose some practical challenges considering the obligation is now shifted to AD banks,” Mehta added.

As per Badri Narayanan, executive partner, Lakshmikumaran & Sridharan Attorneys, the government has been receptive to the feedback from industry and stakeholders on the draft regulations that were released for comments last year and some of the key issues that were flagged have been addressed in the final notified overseas investment rules/regulations.