To wider global market, promotion of brand image, the security of payments in a foreign country, to get better sales and better price, one needs to do overseas set up to boost up its export business. Now it's not only about the setup by investing a little amount of 4,00,000 or 5,00,000 INR. Many countries need huge investment & moreover, only setup is not sufficient one also need to sell from overseas setup. Now in countries like UAE, Srilanka many of the Indian ventures have to supply that on credit to local wholesalers/retailers who have not got a strong base. Now if we start on supplying on credit in overseas market then it would be a huge risk. Now how to safeguard from such a situation ? - To safeguare our money and earn good profit Indian exporter must have its own retail network for example store and shop along with good built up wholesale system. Moreover if you are getting an advance from the overseas market today that does not mean that you will get advance tomorrow because someone like you would be doing his own overseas set up and might supplying on credit to your local wholesaler / retailers. So it's very much important to have a very good setup abroad with huge investment so that our network is up to retail chain so that no one can easily beat us. Once Brand & Regular Supply is there in your hand, you are King or Queen of the market.
How to have a huge network abroad ?
For International Broker, it's important for him to have its own chain at max possible in abroad.
For Investor / Exporter, it's important for him that he gets good profit on regular basis when he works with an International Broker.
So once the Broker who has an overseas setup & Startup Exporter comes under one umbrella then it would be boon for all.
Alternatively, Exporter can find good importer from his network and can make an investment in abroad company for expansion & in return, he can demand specific ROI.
Good Overseas setup is not an easy piece of cake, it needs a team and regular supply with a brand to make an impact.
How overseas setup could be done in a team legally?
According to RBI, there are two ways where an exporter can invest money overseas in a Joint Venture
1. Automated Route: It does not need much permission from RBI, we will focus more on it.
2. Approved Route: It needs more permission from RBI before making any investment in Overseas.
Automated Route :
- An Exporter can easily invest up to 100000 USD in a financial year in any Overseas setup.
- An Exporter or Individual must visit the Bank and fill the ODI Form (Overseas Direct Investment Form) to make such remittance
- AD Bank may forward the proposals from their constituents after ensuring that the laws of the host country permit incorporation of a company without equity participation by the Indian Party.
Approved Route :
- For any remittance in Overseas above 1,00,000 USD in a financial year, one needs to take permission from RBI.
- For such huge remittance, RBI would ask for the securities for the money because there might be possible that Overseas setup shut down and there is a huge loss for the country.
- For it, the Overseas Setup company must give the Bank Guarantee to RBI and for its equity participation of Overseas company or its Branch in India is mandatory.
Understand it better via Q & As
Q. Can the overseas direct investment be made in any business activity other then EXIM? What are the prohibited activities for overseas direct investment?
An Indian Party can make overseas direct investment in any bonafide activity.
Real estate as defined in Notification No. FEMA 120/RB-2004 dated July 7, 2004 and banking business are the prohibited sectors for overseas direct investment. Real estate business means buying and selling of real estate or trading in Transferable Development Rights (TDRs) but does not include development of townships, construction of residential/commercial premises, roads or bridges.
However, Indian banks operating in India can set up JVs/WOSs abroad provided they obtain clearance under the Banking Regulation Act, 1949, from the Department of Banking Regulation (DBR), CO, RBI.
An overseas JV / WOS, having direct or indirect equity participation by an Indian party, shall not offer financial products linked to Indian Rupee (e.g. non-deliverable trades involving foreign currency, rupee exchange rates, stock indices linked to Indian market, etc.) without the specific approval of the Reserve Bank. Any incidence of such product facilitation would be treated as a contravention of the extant FEMA regulations and would consequently attract action under the relevant provisions of FEMA, 1999.
Q. Why Overseas Business formalities cost is so expensive? In India, we can set up a company in 10,000 to 25,000 INR only !!, why in abroad it's so high around 5,00,000 approx?
In India, you can set up a company with 100% of ownership but in abroad in most countries, 51% of ownership has to be given to its citizen. 100% of ownership is not possible for Indians if they do setup abroad in most countries. Yea its also possible that in many countries we can have a setup with 100% of ownership if we set up in Free Trade Zone but such FTZ are far from city so regular basis of sell in-store/mall would be difficult due to more distance among them, so people prefer LLC [Limited Liability Company] in City instead of FTZ in abroad. Moreover, FTZ has also need to pay some more tax to sell in a specific area to a city which does not become refundable for them as they are not fully registered in the country. However, if there is long term contract with store/mall & supply is regular then FTZ is also viable. However in many countries even in FTZ 100% of ownership is not given to Indians.
As in a maximum number of the case we are only getting 49% of a stack in a company overseas we need an overseas citizen partner who would be having the 51% of ownership in a company. Such Overseas partner charge some fix fees on a yearly basis & then they do not interfere not take any stack in the company but they only are in papers. Due to such fix fees, the setup cost shoots up as its add up to the expensive administration cost and rent abroad of office/warehouse.
Q. What is JV and WOS?
"Joint Venture (JV)"/ "Wholly Owned Subsidiary (WOS)" means a foreign entity formed, registered or incorporated in accordance with the laws and regulations of the host country in which the Indian party/Resident Indian makes a direct investment;
A foreign entity is termed as JV of the Indian Party/Resident Indian when there are other foreign promoters holding the stake along with the Indian Party. In case of WOS entire capital is held by the one or more Indian Party/Resident Indian.
Q. How to forward the proposal for making Overseas Direct Investment (ODI) under approval route?
The applicant should approach their designated Authorized Dealer (AD) with the proposal which shall be submitted to Reserve Bank after due scrutiny and with the specific recommendations of the designated AD bank along with supporting documents (as mentioned below) to the following address:
The Chief General Manager,
Reserve Bank of India,
Foreign Exchange Department,
Overseas Investment Division,
Amar Building, 5th Floor,
Sir P. M. Road, Fort,
Mumbai 400001.
The designated AD before forwarding the proposal should submit the Form ODI in the on-line OID application under approval route and the transaction number generated by the application should be mentioned in the letter.
In case the proposal is approved, the AD bank should effect the remittance under advice to Reserve Bank so that the UIN is allotted.
For approval by Reserve Bank, following documents need to be submitted along with Section D and Section E of Form ODI - Part I by the designated Authorized Dealer:
a) A letter from the designated AD of the IP in a sealed cover mentioning the following details:
• Transaction number generated by the OID application.
• Brief details of the Indian entity.
• Brief details of the overseas entity.
• Background of the proposal, if any.
• Brief details of the transaction.
• Reason/s for seeking approval mentioning the extant FEMA provisions.
• Observations of the designated AD bank with respect to the following:
• Prima facie viability of the JV/ WOS outside India;
• Contribution to external trade and other benefits which will accrue to India through such investment;
• Financial position and business track record of the IP and the foreign entity;
• Expertise and experience of the IP in the same or related line of activity of the JV/ WOS outside India.
• Recommendations of the designated AD bank.
b) A letter from the IP addressed to the designated AD bank.
c) Board resolution for the proposed transaction/s.
d) Diagrammatic representation of the organisational structure indicating all the subsidiaries of the IP horizontally and vertically with their stake (direct & indirect) and status (whether operating company or SPV).
e) Incorporation certificate and the valuation certificate for the overseas entity (if applicable).
f) Other relevant documents properly numbered, indexed and flagged.
Q. What are the permissible sources for funding overseas direct investment?
Funding for overseas direct investment can be made by one or more of the following sources:
i. Drawal of foreign exchange from an AD bank in India.
ii. Swap of shares (refers to the acquisition of the shares of an overseas JV / WOS by way of exchange of the shares of the Indian party).
iii. Capitalization of exports and other dues and entitlements.
iv. Proceeds of External Commercial Borrowings / Foreign Currency Convertible Bonds.
v. In exchange of ADRs / GDRs issued in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and the guidelines issued by Government of India in the matter.
vi. Balances held in Exchange Earners Foreign Currency account of the Indian Party maintained with an Authorized Dealer.
vii. Proceeds of foreign currency funds raised through ADR / GDR issues.
ADR is American Depository Receipt means a security issued by a bank or a depository in USA against underlying rupee shares of a company incorporated in India.
GDR is Global Depositary Receipt means a security issued by a bank or a depository outside India against underlying rupee of shares of a company incorporated in India.
FCCB is Foreign Currency Convertible Bond a bond issued by an Indian company expressed in Foreign Currency, and the principal and interest in respect of which is payable in foreign currency.
Q. Which is the main branch of RBI who can impart us all such knowledge with our personal case or questions related to Joint Venture ?
There is a special Overseas Investment Division 
Reserve Bank of India
Foreign Exchange Department
Overseas Investment Division
Central Office, Amar Building, 5th Floor
Mumbai 400 001. Email: helpoid@rbi.org.in
Q. Is there any consultation company who can help us to directly invest in the Overseas Companies?
We are Barai Overseas, we can guide you and help you to build a new joint venture where you actively play the part in the business. If you are only looking for only investment you may approach the reputed Investment Bankers like Goldman Sachs, Morgan Stanley, Barclays Capital, JP Morgan, Credit Suisse etc. [All this co are reputed having branches worldwide / India, also having Wikipedia pages, they have several plans for you & they also assist you with a company where you would be getting certain return for the investment made overseas, you may approach the Indian branches of such Investment Bankers]
Q. What is the role of Investment Banker for us? How do they work for Exporter / Importer?
An Investment bank is a services company or corporate division that engages in advisory-based financial transactions on behalf of individuals, corporations, and governments between several countries. Traditionally associated with corporate finance, such a bank assist in raising financial capital by underwriting for foreigner & acting as the client's agent in the issuance of securities for Indians. An investment bank also assists overseas & Indian companies involved in mergers and acquisitions (M&A) and provide ancillary services such as market making, trading of derivatives and equity securities, and FICC services (fixed income instruments, currencies, and commodities) in with a legal contract and norms.
Q. How new startup can start a joint venture in a group?
I would like to give you an example of my students who started Annapurna Exim Seva PVT LTD in a group. AESPL initially started with 7 members and now they are 32 in a company. They are setting up own venture in Kuwait & Malaysia.
See Tweet : https://twitter.com/baraioverseas/status/1190529176266137601
If you really want to get good success in this business you need a trusted group of India and Abroad & it would prove to be a cherry on the cake if you have such a group in both countries. Indian Embassy, Investment Bankers, and RBI are very helpful to us in the establishment of Joint Ventures or making an investment in a set firm. We are also ready to support you but do you have a trained team?
Watch it Again & Read its youtube description, in it you will also find the RBI Guidelines Link: https://www.youtube.com/watch?v=u3_a3YJqBfY&t=12s
Cordially Yours,
Kishan Barai