What changed
Previously, if a foreign company held its Indian investment through a holding company or SPV, employees needed case-by-case RBI approval to buy ESOP shares of the ultimate parent. Now, no prior permission is required as long as the foreign company's indirect holding in the Indian entity is at least 51%.
What it means for you
Banks can process ESOP remittances for eligible employees without seeking RBI approval for indirect holding structures. This reduces compliance burden and speeds up transactions for MNCs with layered ownership. Lenders must verify the 51% threshold through corporate documents before allowing remittances.
What you must do
- Update internal ESOP processing guidelines to allow remittances without RBI approval for indirect holdings meeting the 51% threshold.
- Train staff to verify the foreign company's indirect shareholding percentage using audited financials or holding statements.
- Advise corporate clients with SPV structures that prior RBI permission is no longer needed for ESOP purchases.
- Maintain records of ESOP transactions for regulatory reporting under FEMA.
Who it affects
Authorised Dealer banks handling outward remittances, Indian employees/directors of Indian offices/branches/subsidiaries of foreign companies or Indian companies with foreign equity ≥51% held directly or indirectly via SPVs or step-down subsidiaries
Does this circular apply to all ESOPs or only those from foreign companies with indirect holdings?
It specifically liberalises ESOPs where the foreign company holds its Indian investment indirectly through an SPV or step-down subsidiary. For direct holdings, the existing rules under Regulation 22 of FEMA 19/2000 continue.
What documentation do we need to verify the 51% indirect holding?
Banks should obtain a certificate from the Indian company's statutory auditor or a board resolution confirming the foreign company's indirect equity stake is at least 51%.
Are there any reporting requirements after processing such ESOP remittances?
Yes, banks must report these transactions under the existing FEMA reporting framework for overseas direct investment, as specified in the relevant AP DIR circulars.