What changed
Earlier, AD banks could allow ESOP remittances only if the foreign company held ≥51% in the Indian company directly or indirectly, but remittances were allowed directly to the company offering shares. Now, AD banks may allow remittance for acquiring shares under ESOP schemes irrespective of the method of operationalisation, including indirectly through a trust/SPV/step-down subsidiary, provided the foreign company holds ≥51% and the scheme is offered globally on a uniform basis. Additionally, foreign companies now have general permission to repurchase ESOP shares from Indian residents, subject to conditions (shares issued under FEMA rules, repurchase per initial offer document), without needing prior RBI approval.
What it means for you
Banks can now process ESOP-related outward remittances more flexibly, as the method of operationalisation is explicitly liberalised. This grants general permission for ESOP repurchases, streamlining compliance. However, banks must ensure annual reporting (Annex I & II) is submitted by the Indian company and that all communications from Indian parties to RBI relating to overseas investments are routed through the designated branch, which must forward its comments/recommendations.
What you must do
- Update internal ESOP processing guidelines to allow remittances via trusts, SPVs, or step-down subsidiaries if the 51% holding and uniform global offer conditions are met.
- Ensure that for ESOP repurchases by foreign companies, the shares were issued under FEMA rules and the repurchase is per the initial offer document; collect annual Annex II returns.
- Require Indian companies to submit annual Annex I returns for ESOP acquisitions and route all overseas investment communications through the designated AD branch.
- Train staff to forward customer requests to RBI with the bank's comments/recommendations, as all such communications must now go through the designated branch.
Who it affects
Authorised Dealer (AD) banks handling foreign exchange, Indian companies with foreign holding ≥51% offering ESOPs to employees/directors, Foreign companies issuing or repurchasing ESOP shares from Indian residents, Indian investors with Joint Ventures or Wholly Owned Subsidiaries abroad
Can AD banks now allow ESOP remittances if the foreign company uses a trust to offer shares?
Yes. The circular explicitly permits AD banks to allow remittances for ESOPs where shares are offered indirectly through a trust, SPV, or step-down subsidiary, provided the foreign company holds ≥51% in the Indian company and the scheme is offered globally on a uniform basis.
Do foreign companies still need RBI approval to repurchase ESOP shares from Indian employees?
No. RBI has granted general permission for such repurchases, provided the shares were issued under FEMA rules and the repurchase is in line with the initial offer document. However, an annual return (Annex II) must be submitted through the AD bank.
What reporting changes are introduced for overseas investments?
All communications from Indian parties to RBI regarding overseas investments must now be routed through the designated AD bank branch. The AD bank must forward its comments/recommendations along with the customer's request.