Indian Company Investing in Foreign Company

Indian Company can make investment in the shares of a foreign company for various reasons like technical knowhow, export of goods or services, import of goods or services and sharing of research and development costs. Such investments by Indian companies in the shares of a foreign company are termed as joint ventures. In this article, we look at the procedure for investing in the shares of a foreign company.

Pre-Investment Checklist

Prior to investing in the shares of a foreign company, the following must be verified by the Indian Company:

Indian company can make direct investment in a foreign entity engaged in real estate business or banking business only with RBI approval.
The company should not be on RBI's export caution list or list of defaulters to the banking system.
The company must have filed upto date Annual Performance Report for all overseas investment in the format provided.
Indian company can route all transactions relating to the investment only through one branch of an authorised dealer.
The company's total financial commitment should not exceed 400% of the net worth of the Indian company as on the date of the last balance sheet.

The networth of the company can be calculated including the networth of holding or subsidiary company. In determining total financial commitment, the following are to be reckoned:

Remittance by market purchases, namely in freely convertible currencies.
Capitalization of export proceeds and other dues and entitlements.
100% of the value of guarantees issued by the Indian party to or on behalf of the JV.
Utilisation of the amount raised by issue of ADR/GDR by the Indian party.
External commercial borrowing in conformity with other parameters of the ECB guidelines.
Sway of shares.
ADR/GDR stock swap subject to the valuation norms and sectoral cap.

Filing for Investment in Foreign Company

In-eligibility: In case the company does not satisfy the eligibility norms as mentioned above, then an application can be made to the Chief General Manager, Reserve Bank of India. Automatic Route: In case of investment through the automatic route, part I of form ODI along with supporting documents must be submitted with recommendations by designated AD Category-1 bank. Approval Route: In case of investment through the approval route, part I of form ODI along with supporting documents must be submitted with recommendations by designated AD Category-1 bank for RBI approval.

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Frequently Asked Questions

Common questions about Indian Company Foreign Investment Procedure.

The Indian company must not be engaged in real estate or banking business without RBI approval. It should not be on RBI's caution list or defaulters list. The company's total financial commitment should not exceed 400% of its net worth, and it must have filed up-to-date Annual Performance Reports for all overseas investments.

An Indian company can make direct investment in a foreign entity engaged in real estate business or banking business, but only with prior approval from the Reserve Bank of India (RBI).

An Indian company can route all transactions relating to the foreign investment only through one branch of an authorized dealer.

The factors considered while determining the total financial commitment include remittance through market purchases, capitalization of export proceeds and dues, value of guarantees issued, amount raised through ADR/GDR issue, external commercial borrowing, and share swaps.

To invest through the automatic route, the Indian company must submit Part I of Form ODI along with supporting documents and recommendations from the designated AD Category-1 bank.

An Indian company needs to seek RBI approval for foreign investment if it does not satisfy the eligibility norms for the automatic route or if the investment is in a foreign real estate or banking company.

To seek RBI approval, the Indian company must submit Part I of Form ODI along with supporting documents and recommendations from the designated AD Category-1 bank to the Reserve Bank of India.

Yes, the article mentions that one of the reasons an Indian company can make investment in the shares of a foreign company is for sharing research and development costs.

Yes, the article states that the Indian company's total financial commitment should not exceed 400% of its net worth as per the last balance sheet.

Yes, the article mentions that an Indian company can make investment in the shares of a foreign company for reasons like technical know-how, export of goods or services, and import of goods or services.