ODI Compliance After Setting Up a Foreign Subsidiary

ODI Compliance requirements are a must know. If you are an Indian company that has recently established a foreign subsidiary, staying compliant with the rules under the Overseas Direct Investment (ODI) framework is crucial. The Reserve Bank of India has outlined specific procedures that every Indian business must follow when investing in an entity outside India. 

Whether you are entering a new international market or partnering in a joint venture, this guide will walk you through everything you need to know after the investment is made.

What Is ODI Compliance and Why Does It Matter

ODI compliance refers to the set of responsibilities Indian businesses must fulfill after investing in a company abroad. This investment could be in the form of a wholly owned subsidiary, a joint venture, or any other foreign entity.

The RBI uses ODI regulations to track how Indian capital is being deployed globally. By enforcing these rules, the RBI ensures that foreign investments are legitimate, transparent, and within the limits prescribed under Indian law.

Failure to comply can result in fines, delays in the approval of future investments, and legal complications under the Foreign Exchange Management Act (FEMA).

Who Must Follow ODI Complaince Rules

ODI compliance is mandatory for any Indian company that:

• Owns or operates a branch office in another country
• Has invested in a joint venture or subsidiary outside India
• Has transferred funds abroad to purchase equity in a foreign business

This applies to private limited companies, public limited companies, and sometimes even Limited Liability Partnerships.

What You Must Do After Investing Abroad

Once the foreign investment is made, your responsibility does not end there. The RBI expects ongoing compliance through specific forms, timelines, and documentation.

1. File the Annual Performance Report (APR)

Each year, you must submit an APR for every foreign entity where you hold equity. The report should include financials like turnover, net income, profit or loss, and ownership details. It must be filed through your Authorised Dealer (AD) bank by 31 December for the previous financial year.

2. Submit Form FC for any Changes

If there are changes in shareholding, capital structure, transfer of shares, or closure of the foreign unit, you must report those changes using Form FC. These forms help the RBI track updates to your overseas investment.

3. Provide Share Certificates

You are required to obtain and submit share certificates from the foreign entity within six months of transferring the funds. This document proves that the investment was successfully executed and shares were issued in your company’s name.

4. Report Disposals and Write-offs

If you sell off your foreign investment or decide to write off the value due to business losses, you must report this event to the RBI promptly. These changes are also part of your ongoing compliance duties.

The Risks of Ignoring ODI Compliance

Legal Repercussions

ODI compliance is legally binding under FEMA. Ignoring deadlines or failing to submit required documents can result in monetary penalties. In some cases, the RBI may require compounding of the offense, which is a formal settlement process that also takes time and money.

Delayed Approvals

If you plan to make more investments abroad, an incomplete compliance history can delay the approval process or even restrict future permissions.

Loss of Trust

Foreign partners and international banks often review your regulatory history. Maintaining updated filings and complete documentation boosts your credibility in cross-border dealings.

Common Mistakes Indian Companies Make

Even companies with years of international exposure can make errors. Here are some of the common pitfalls:

Missing the APR Deadline

Some businesses overlook or delay filing the Annual Performance Report. This is one of the most important filings in ODI compliance, and missing it can trigger alerts in RBI’s records.

Poor Recordkeeping

Failing to keep share certificates, remittance proofs, and RBI approvals in one place can create problems during audits or future filings.

Ignoring Changes in Investment Structure

If the foreign unit merges, shuts down, or changes hands, and the RBI is not informed, it results in gaps in compliance. This can create difficulties if you plan new outbound investments in the future.

How to Stay on Top of ODI Compliance

Following a few good practices can help you manage your compliance duties without stress.

Stay Updated with RBI Circulars

The RBI issues frequent circulars and updates. Staying informed helps you avoid unintentional errors due to outdated procedures.

Maintain a Central Compliance File

Keep all documents related to the foreign investment in one place. This includes RBI approvals, remittance confirmations, share certificates, and previous APRs. A central file saves time when it comes to audits or renewals.

Set Filing Reminders

Mark important deadlines like 31 December for APR and the six-month timeline for submitting share certificates. Setting calendar reminders helps avoid late filings.

Work with a Trusted Advisor

ODI filings require financial details, regulatory interpretation, and procedural accuracy. Hiring an experienced advisor helps you avoid mistakes and makes the process more efficient.

Using the Authorised Dealer for ODI Reporting

All ODI-related filings must be done through the RBI’s Foreign Investment Reporting and Management System (FIRMS). Companies typically do not file directly on the portal themselves. Instead, you are required to:

• Prepare and submit the necessary ODI documents and forms to your Authorized Dealer (AD) bank
• The AD bank will verify the documents and report the transaction to RBI
• The AD bank is also responsible for submitting your Annual Performance Reports (APR) and notifying the RBI of any structural changes or disinvestments

.What Happens If You Miss a Deadline

Missing a compliance step can lead to penalties under FEMA. Some consequences include:

• Financial penalties
• Delays in approval for future investments
• Restrictions on making new capital account transactions

Being proactive and well-organized can help you avoid all of these issues. Compliance is not just a rule to follow. It is a signal to regulators, banks, and partners that your business is credible and well-managed.

Need Help with ODI Compliance?

At LedgersCFO, we work closely with Indian companies that invest abroad and need to stay compliant with the RBI’s ODI regulations. Whether it’s preparing your Annual Performance Report, making an ODI, or maintaining proper documentation, we handle the details, so you don’t have to stress.

Our experts will guide you step by step, ensure your filings are accurate, and help you stay on track with every RBI deadline.

Let us simplify your ODI compliance. [Schedule a free consultation today.]

FAQ’S

1. What is ODI compliance?

ODI compliance refers to the legal steps Indian companies must follow after investing in a foreign entity, as per RBI guidelines.

2. What is the deadline for filing the Annual Performance Report?

The deadline is 31st December each year for the previous financial year.

3. Can I submit ODI filings without share certificates?

No, you must submit share certificates within six months of investing.

4. What happens if I miss an ODI filing deadline?

You may face penalties under FEMA, and your future ODI plans may be delayed or restricted.

5. How can LedgersCFO help with ODI filing?

LedgersCFO provides full support throughout the ODI filing process. From preparing documents and completing forms to submitting them to Authorised dealer bank, we make sure your business stays fully compliant. With our help, you can avoid delays, skip confusion, and focus on growing your business overseas.