Investing outside India: ODI, LRS and the filings founders miss
Setting up a company abroad takes an afternoon. Holding it compliantly from India is the part that takes planning, and it's where founders get caught.
Summary
- An Indian company can commit up to 400% of its net worth abroad, but guarantees count against that limit as well as money sent, and early-stage companies often have far less room than the headline suggests.
- Form FC and a unique identification number come before the first remittance, not after. Then an Annual Performance Report is due by 31 December every year for every foreign entity, dormant or not.
- A founder can own a foreign company personally under the Liberalised Remittance Scheme, up to USD 250,000 a year, but only an operating business, and the choice between personal and company ownership is expensive to undo.
Setting up a company abroad takes an afternoon. A US entity can be incorporated online before lunch.
Holding it compliantly from India is the part that takes planning, and it's where founders get caught. Not because the rules are unreasonable, but because nobody tells you they exist until something goes wrong: a bank refuses a remittance, a diligence team asks for an APR, or you try to fund the subsidiary and discover you've used up a limit you didn't know you had.
This is the outbound side, governed by the Overseas Investment Rules, Regulations and Directions of 2022. If you're taking money in from a foreign investor, that's a different rulebook.
First question: is it ODI or OPI?
Two categories, one test.
ODI, overseas direct investment. You hold 10% or more of the foreign entity's , or you have control at any stake. Subsidiaries and joint ventures sit here. Fuller rules, real reporting.
OPI, overseas portfolio investment. Below 10%, no control. Lighter reporting.
Get this wrong and you file under the wrong head or don't file at all. A founder taking a 5% stake in a partner company abroad and a founder setting up a wholly owned subsidiary are in genuinely different regimes.
How much can you send? More than you think, until guarantees count
Under the automatic route, an Indian company can commit up to 400% of its net worth abroad, across all its foreign entities together.
The catch is in the word commit. Financial commitment isn't just money remitted. It includes:
- Equity you subscribe to
- Loans you give the foreign entity
- Guarantees you issue: a corporate guarantee counts at 100% of the amount guaranteed, a performance guarantee at 50%
That third one catches people. You haven't sent a rupee, but you've signed a guarantee so your US subsidiary can take an office lease or a credit line, and it's drawing down the same limit.
Work out what counts as your headroom before you commit, not after your banker queries the next remittance.
A separate point: net worth is your company's, as per the last audited balance sheet. Early-stage companies with small net worth often have less room than the 400% figure suggests.
The sequence: Form FC before the money
The order matters, and reversing it is the most common outbound mistake.
- Board approval for the investment.
- Route it through your AD bank, the authorised dealer bank that will handle the remittance.
- File Form FC before you remit. This gets the foreign entity a UIN, a unique identification number that identifies it in all future filings. The first investment cannot be made without it.
- Remit the money.
- Obtain and keep the share certificates or other evidence of ownership from the foreign entity, within six months of the remittance.
Every later commitment to that same entity, a second tranche, a loan, a guarantee, reports against the same UIN.
Founders often do this backwards: incorporate abroad, fund it from wherever is convenient, and ask about compliance afterwards. Fixing that is possible, but it's a regularisation exercise, with a fee and an explanation.
The 31 December deadline nobody diaries
Here's the filing that almost never gets made.
The Annual Performance Report is due by 31 December each year for every foreign entity in which you hold ODI, based on that entity's audited for its year.
Audited means audited, even where the host country doesn't require an . Unaudited accounts, certified by your statutory auditor or a chartered accountant, are accepted only where you do not control the foreign entity and the host country does not require an audit. A wholly owned subsidiary in a jurisdiction with no audit requirement still needs audited accounts for its APR, which is a cost to plan for at incorporation.
Three things to know:
It's per entity, per year. Three foreign subsidiaries means three APRs, every year, for as long as you hold them.
It's holding-based, not activity-based. A dormant foreign shell that did nothing all year still needs one. The only exemptions are a holding under 10% without control and with no other commitment, or an entity already in liquidation. This is the same trap as the annual FLA return, which is also owed on what you hold rather than what you did.
Missing it has teeth. An outstanding APR blocks further financial commitment to that entity until it is filed.
You find out about the obligation at the moment you're trying to fund payroll in your foreign subsidiary.
If you've missed previous years, there's a late submission fee route to regularise. Do it before a diligence, not during one. The monthly compliance calendar carries the dates as they fall due.
Also on the reporting list: disinvestment, reportable within 30 days of receiving the proceeds when you sell or close out the foreign entity. Until that's done, the UIN stays open and the APR obligation keeps running, which is why founders sometimes get chased for reports on an entity they shut down two years ago.
Doing it personally: the LRS route
A resident individual can invest abroad under the Liberalised Remittance Scheme, currently up to USD 250,000 per financial year. Tax is collected at source on the remittance: for investment, 20% of whatever you send above ₹10 lakh in the financial year, which you then claim back against your own tax.
This is how most founders end up owning a foreign entity personally: they incorporate a US holdco themselves, using their own limit, on someone's advice.
It can be valid. But the conditions are narrower than people assume:
- The foreign entity has to be an operating business, not a shell holding company doing nothing.
- If you control it, it cannot have subsidiaries or step-down subsidiaries of its own.
- It cannot be engaged in financial services.
- It still carries reporting, including the APR.
And a practical point that matters more than the rules: personal ownership and company ownership are different structures with different consequences. If your Indian company will eventually need to own or be owned by that foreign entity, deciding this casually at incorporation creates an expensive restructuring later.
Round-tripping: no longer banned, but narrow
Under the old rules, a structure where money went out and came back into India through a foreign entity was effectively prohibited.
The 2022 rules changed this. Round-tripping is now permitted, subject to a restriction on layers: you cannot invest in a foreign entity that has invested back into India if the structure runs to more than two layers of subsidiaries.
Two ways founders get this wrong. Some are still operating on the old understanding and avoid structures that are now perfectly valid. Others hear "it's allowed now" and build a chain that breaches the layer limit.
If you're flipping your structure, this is the rule that shapes what's possible.
What you can't invest in
The activity has to be a bona fide business. Real estate activity, gambling in any form, and financial products linked to the rupee (without RBI approval) are out.
Financial services has its own conditions. A company not itself in financial services can invest in a foreign financial services entity, other than banking or insurance, only if it has posted net profits in each of the preceding three financial years. That catches fintech founders who assume a foreign entity is straightforward.
Check the activity before you incorporate, not after.
A running sheet beats a good memory
One row per foreign entity: name, country, UIN, date of each commitment, type (equity, loan, guarantee), amount, running total against your headroom, APR filed for each year, and where the supporting documents live.
Update it whenever money or a signature goes out. The alternative is reconstructing five years of transactions in the week an investor asks.
Frequently asked questions
What is the APR filing and when is it due?
The Annual Performance Report is filed by 31 December each year by any Indian resident holding overseas direct investment, one for each foreign entity, on that entity's audited accounts. It is due even if the entity was dormant, and an outstanding APR blocks further commitments to it until filed with a late submission fee.
What is the difference between ODI and OPI?
ODI is 10% or more of a foreign entity's equity, or any stake carrying control; OPI is below 10% without control. A wholly owned foreign subsidiary is ODI, and the distinction decides which reporting regime applies.
Can a founder set up a foreign company personally under LRS?
Yes, within USD 250,000 per financial year, but only in an operating business outside financial services and, where you have control, one without subsidiaries of its own. Personal and company ownership have very different consequences, so decide the structure deliberately.
If you want the running sheet built and the APR history checked before an investor asks, our compliance and governance work covers overseas investment reporting.
Current as at September 2026. The overseas investment rules were overhauled in 2022 and have been amended since, and TCS rates change with each budget. General guidance, not legal advice: get advice on your specific situation.
How useful was this article?
One tap. It tells us what to write more of.
About the author
Lead - Company Secretarial, Compliance & Fundraise Advisory
Everything Manavi has writtenLinkedInThe next one
Get what we publish next, by email.
Working notes on raising, borrowing, protecting, growing and structuring capital in India. One email a week at most, and you can leave any time.
We use your address only to send this. See our privacy policy.
We store your address to send you these emails and nothing else. See our privacy policy.
Related reading
