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How can an Indian Company Invest in Foreign Company

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How can an Indian Company Invest in Foreign Company ?

Today Indian companies do not only accept foreign investments but also invest in foreign companies. Know ' How can an Indian Company Invest in Foreign Company'. Over the years the magnitude as well as the geographical reach of Indian companies has increased. Nowadays there are numerous companies that make outbound investments in foreign firms. These outbound investments are called overseas direct investments. 

If a person or company wishes to make an overseas direct investment then it needs to follow the guidelines of Reserve Bank of India (RBI) under Foreign Exchange Management Act (FEMA). An Indian entity or individual can invest a joint venture or fully owned subsidiaries. The limit of investment allowed varies from country to country.

Direct investment

Direct investment means investment in a foreign company by contributing to its capital or purchasing its shares. This can be achieved either through Approval Route or Automatic Route. Through direct investment an individual or entity can either purchase the entire stock or invest partially in a foreign company.

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A person or company can invest in any foreign activity other than expressly prohibited by RBI. Although few more permissions are required by companies who wish to invest in financial services.

Automatic Route

Automatic route is a route in which companies do not require prior approval of RBI before making an overseas direct investment. The investment needs to be made through Authorized Dealer Category-1 bank by filling up Form ODI.

However, in the automatic route there are a few limitations, viz.

  • Prior RBI approval if investment is to be made in financial services sector.
  • The investor must make investment up to the prescribed limit of net worth as per the laws of the foreign country.
  • The investor must not be a defaulter under any law, viz. banking, export, etc.
  • The investor must route all the payments via same authorized dealer route.

Approval route

The category of investments that do not fall under automatic route and require prior approval of RBI are covered under this route.

For instance, financial services. An investor needs to get permission from RBI before investing in them.

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