What changed
This 2007 Master Circular consolidates all existing instructions on direct investment by residents in Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS) abroad into a single document. It replaces earlier circulars and notifications, providing a unified reference for banks and investors.
What it means for you
Banks must use this circular as the single source for processing overseas direct investment applications under FEMA. The automatic route and general permissions simplify approvals, but banks must verify compliance with prohibitions and reporting requirements. The sunset clause means this circular will be replaced after one year, so banks should stay updated.
What you must do
- Ensure all overseas investment remittances comply with the automatic route limits and funding methods specified.
- Verify that investments in financial services sector or through share swaps get prior RBI approval where required.
- Allocate Unique Identification Number for each JV/WOS and report remittances via Form ODI.
- Monitor sunset clause: this circular stands withdrawn on July 01, 2008; prepare for updated instructions.
- Advise customers on hedging requirements for overseas direct investments as per the circular's provisions.
Who it affects
All Authorised Dealer Banks handling foreign exchange, Indian corporates investing in JVs/WOS abroad
What is the automatic route for overseas investment?
Under the automatic route, Indian entities can invest up to specified limits in JVs/WOS without prior RBI approval, subject to compliance with FEMA regulations and reporting through Form ODI.
What are the prohibited investments under this circular?
The circular lists prohibitions in Section A.3, which include investments in a foreign entity engaged in real estate (as defined in Reg 2(p) of FEMA120) or banking business.
How should banks report remittances for overseas investments?
Banks must report remittances using Form ODI (Part I-IV) and ensure allotment of a Unique Identification Number for each JV/WOS, as per operational instructions in Part II.