Outbound Investment From India in 2026: Structuring Cross‑border Acquisitions and Investments

In short

• Most outbound acquisitions proceed under the automatic route, within 400 per cent of the Indian entity’s net worth and USD 1 billion of financial commitment per financial year.
• The outbound reporting form is Form FC. Form FC-TRS belongs to the inbound FDI regime and has no application to overseas direct investment.
• From Tax Year 2026-27 the Income-tax Act, 2025 applies. Foreign tax credit is claimed in Form 44 under Rule 76 of the Income-tax Rules, 2026, not Form 67.
• For groups above EUR 750 million of consolidated revenue, the global minimum tax has largely removed the case for a low-taxed holding SPV. Ask where the top-up tax lands before you ask where the withholding tax is lowest.
• The binding constraint on timing is usually host-country investment screening, not the Reserve Bank of India. The European Union’s new foreign investment screening regulation, adopted in June 2026, reaches investments made through EU-incorporated subsidiaries.
• The most common deal-stopper is the investor’s own compliance history: an unfiled Annual Performance Report, an NPA classification, or a pending investigation triggering the no-objection requirement under Rule 10 of the Overseas Investment Rules, 2022.

Outbound investment from India has moved back to the top of the boardroom agenda in 2026, as renewed deal appetite among Indian corporates collides with sharper regulatory scrutiny of cross-border structures at both ends of the transaction. This guide is written for in-house counsel, CFOs and corporate strategy teams who must decide how to structure an overseas acquisition, joint venture or greenfield investment, and who need a practical answer, not a hedged academic survey. Over the sections below you will find a one-page decision framework, the ODI and OPI characterisation test, the FEMA and RBI approval mechanics that actually govern the deal, a side-by-side comparison of transaction vehicles, five structuring options the standard analysis omits, tax and repatriation planning under India’s new direct tax statute, host-country screening, and a post-closing compliance playbook.

The message throughout is direct: pick the structure that matches your commercial purpose, build genuine substance, and file cleanly. Everything else is detail.

Who this is for: In-house counsel, CFOs, company secretaries and corporate strategy teams of Indian companies planning outbound M&A, joint ventures or overseas investments, and promoters co-investing alongside the company under the Liberalised Remittance Scheme.

What you will decide: The right structure and approval route; a realistic timeline that accounts for host-country investment screening as well as Indian filings; the board and shareholder approvals and regulatory filings you must prepare; the tax and repatriation risks to manage under the Income-tax Act, 2025 and the global minimum tax; and which advisers to engage, in which order.

Why 2026 matters for outbound investment India

Indian corporates are once again looking outward, acquiring technology, securing supply chains, and building distribution in mature and emerging markets alike. At the same time, regulators are paying closer attention to how those investments are structured. The overseas investment framework has three layers, and the division of labour matters because it determines whom you approach for what: the Foreign Exchange Management (Overseas Investment) Rules, 2022 are notified by the Central Government through the Department of Economic Affairs, Ministry of Finance; the Overseas Investment Regulations, 2022 and the Overseas Investment Directions, 2022 are issued by the Reserve Bank of India. Beneficial-ownership expectations and international anti-abuse standards under the OECD’s BEPS project have raised the bar for what a defensible structure looks like.

Three things have changed since the last generation of outbound guidance

India’s direct tax statute is new. The Income-tax Act, 2025 replaced the Income-tax Act, 1961 with effect from 1 April 2026 and applies to Tax Year 2026-27 onwards; the 1961 Act continues to govern earlier years and all pending assessments and appeals. The reform is structural rather than substantive, but every citation in your board papers, tax opinions and transaction documents needs remapping. Treaty relief now flows through section 159 rather than section 90, the general anti-avoidance rules sit in Part T, and the foreign tax credit statement is Form 44 under Rule 76 of the Income-tax Rules, 2026.

The global minimum tax now constrains holding-company design. India has not enacted the GloBE rules, and that is not the relevant question. Singapore’s income inclusion rule and domestic top-up tax apply to financial years beginning on or after 1 January 2025; the United Arab Emirates has a domestic minimum top-up tax; the Netherlands and most of the European Union have been live since 2024. An Indian-headquartered group above the EUR 750 million consolidated revenue threshold that routes an acquisition through a low-taxed intermediate vehicle will simply see the saving collected elsewhere in the chain. For in-scope groups, the classical low-tax SPV rationale is largely spent.

Host-country screening has hardened. The Council of the European Union gave final approval to a new foreign investment screening regulation on 8 June 2026, replacing the 2019 framework. It obliges all twenty-seven Member States to operate a screening mechanism, sets a mandatory minimum sectoral scope requiring prior authorisation, and extends screening to investments made through EU-incorporated subsidiaries. Add the Foreign Subsidies Regulation, the United Kingdom’s National Security and Investment Act and CFIUS, and the binding constraint on your timetable is usually the target’s jurisdiction, not the Reserve Bank of India.

The practical effect is a two‑speed reality. Well‑structured, transparent deals with genuine commercial rationale can move quickly under the automatic route. Opaque, low‑substance conduit structures now carry real enforcement and treaty‑denial risk. For any Indian company investing abroad in 2026, the winning approach is to treat compliance as part of deal design from day one, not as a filing exercise bolted on after signing.

This article takes a position at each decision point. Where the brief calls for a recommendation, you will get one, framed as a clear “choose this when” rule rather than a list of considerations to weigh indefinitely.

Quick decision framework, choose or avoid, at a glance

Before the detail, here is the one‑page framework. Use it to pick a starting structure, then validate it against the FEMA, tax and governance sections that follow.

• Choose a direct share purchase when the transaction is a single, discrete target; the host jurisdiction has limited withholding tax and a workable treaty with India; you want operational control without additional holding layers; and the marginal treaty benefit of an intermediate vehicle is small. Fewer layers means simpler ownership transfer, cleaner Form FC reporting, and one less entity to keep substantiated year after year.
• Choose an overseas subsidiary or SPV when you need genuine treaty access, want a centralised holding company for multiple investments, require ring-fenced liability, or plan to raise local acquisition financing or run currency hedging at the holding level. The condition is non-negotiable: build real economic substance, and test the structure against the principal purpose test, beneficial-ownership requirements and, if your group is in scope, the GloBE rules before you incorporate. Note that Rule 19(3) of the Overseas Investment Rules, 2022 caps the structure at two layers of subsidiaries where the foreign entity invests back into India, so plan the tiering carefully in any structure with an Indian leg.
• Choose a joint venture when the sector requires a local partner, industry‑specific restrictions apply, or you genuinely need local market expertise and shared risk. Invest heavily in the shareholders’ agreement, particularly exit and deadlock mechanics.
• Avoid opaque conduit jurisdictions and pure paper structures where enforcement, beneficial‑ownership or round‑tripping risk is high. Authorities can, and increasingly do, treat such routes as abusive, denying treaty benefits and triggering enforcement.
• Consider a cross-border merger when the commercial objective is consolidation rather than the acquisition of a standalone business, and you can live with the National Company Law Tribunal timetable.
• Consider a GIFT IFSC vehicle when you want an Indian time-zone, INR-adjacent holding, treasury or fund platform, and you do not need a specific third-country treaty position.

Is it ODI or OPI? The threshold question most checklists skip

Before any route analysis, characterise the investment. The Overseas Investment Rules, 2022 draw a bright line, and getting it wrong sends you down the wrong filing path entirely.

• Overseas Direct Investment (ODI) means investment by way of acquisition of unlisted equity capital of a foreign entity; subscription to the memorandum of a foreign entity; acquisition of 10 per cent or more of the paid-up equity capital of a listed foreign entity; or investment of less than 10 per cent in a listed foreign entity where it is accompanied by control.
• Overseas Portfolio Investment (OPI) is investment in foreign securities other than the above, and other than in an unlisted debt instrument or in any security issued by a person resident in India who is not in an International Financial Services Centre.

ODI triggers Form FC, the Unique Identification Number, and lifelong Annual Performance Report obligations. OPI is reported separately and far more lightly. A 9.9 per cent strategic stake with a board seat and veto rights is not portfolio investment simply because it sits under 10 per cent: control pulls it into ODI, with everything that follows.

FEMA outbound investment: RBI approval routes, financial commitment limits and the gates in between

Every outbound investment transaction runs through the Foreign Exchange Management Act, 1999 and the framework made under it: the Overseas Investment Rules, 2022 notified by the Central Government, and the Overseas Investment Regulations and Directions, 2022 issued by the Reserve Bank of India. Understanding the routing early is the single biggest determinant of your Indian-side timeline.

Broadly, an Indian entity’s Overseas Direct Investment (ODI) can proceed either under the automatic route, where no prior RBI approval is required provided the investment stays within the prescribed limits and conditions, or the approval route, where prior RBI permission must be obtained before funds move. The automatic route covers the large majority of ordinary commercial acquisitions and subscriptions by non‑financial Indian companies into overseas operating businesses. The approval route is reserved for cases that fall outside those parameters.

Approval becomes mandatory, or additional scrutiny applies, in situations such as these:

• Investment by regulated entities, banks, non‑banking financial companies and other financial‑sector institutions, which are subject to sector‑specific conditions.
• Investment that exceeds the financial commitment limits applicable to the Indian party under the framework.
• Structures in which the foreign entity invests back into India beyond the permitted two layers of subsidiaries, or investment into jurisdictions and sectors that attract heightened review.
• Transactions where the source of funds, beneficial ownership, or the presence of round‑tripping indicators raises questions.

• Financial commitment exceeding USD 1 billion, or its equivalent, in a financial year, even where it sits within the 400 per cent net-worth ceiling.
• Investment in a foreign entity engaged in real estate activity, gambling in any form, or dealing in financial products linked to the Indian rupee, and any investment into Pakistan.

The limits that define the automatic route

• Total financial commitment must not exceed 400 per cent of the net worth of the Indian entity as on the date of its last audited balance sheet.
• Financial commitment above USD 1 billion in a financial year requires prior RBI approval, even within the 400 per cent ceiling.
• Financial commitment is not just equity. It includes debt extended to the foreign entity and guarantees issued on its behalf. Corporate guarantees are reckoned at 100 per cent of the amount guaranteed; performance guarantees are reckoned at 50 per cent; a charge created on assets counts at the value of the charge. Many boards approve an equity number and are then surprised when the guarantee package consumes the headroom.
• Strategic sector investment — energy, natural resources such as oil, gas, coal and mineral ores, submarine cable systems, start-ups, and such other sectors as the Central Government may notify — may exceed the limits with Government approval routed through the RBI.

The gates most deals actually stumble on

The no-objection requirement (Rule 10). A person resident in India whose account is classified as a non-performing asset, who is a wilful defaulter, or who is under investigation by any investigative agency or regulatory body, must obtain a no-objection certificate from the lender bank, regulator or agency before making a financial commitment or transferring an overseas investment. If no response is received within sixty days, it is deemed granted. In practice, an unresolved show-cause notice sitting with a group entity has stalled more outbound deals than any RBI query. Diligence your own house before you diligence the target.

Financial services. An Indian entity not engaged in financial services may make ODI into a foreign entity engaged in financial services, other than banking and insurance, only if it has posted net profits in each of the preceding three financial years. Regulated Indian financial-sector entities face sector-specific conditions and their own regulator’s approval.

Resident individuals. Promoters and founders often want to co-invest. An individual may make ODI under the Liberalised Remittance Scheme, but only into an operating foreign entity that is not engaged in financial services and that does not have a subsidiary or step-down subsidiary in which the individual has control. This routinely defeats the instinct to mirror the corporate structure at promoter level.

The Authorised Dealer (AD) bank is your operational gateway. Almost every filing and remittance in an outbound investment passes through the AD bank, which reviews documentation, obtains the Unique Identification Number for the foreign entity from the RBI, and channels reporting. The UIN must be obtained before the financial commitment is made, not after. Choosing a responsive, cross-border-experienced AD bank is not administrative housekeeping; it is a material determinant of your timetable.

Funding an outbound acquisition: the modes most guides omit

An outbound investment need not be cash out of the door. Permitted modes of funding include remittance through banking channels; swap of securities, that is, issuing shares of the Indian company as consideration for shares of the foreign target; capitalisation of exports and other dues receivable from the foreign entity; proceeds of external commercial borrowings within the ECB framework; proceeds of ADR or GDR issues; and balances in EEFC accounts.

The share swap deserves more attention than it gets from Indian acquirers. It preserves cash, aligns the seller with the combined business, and can convert a stretched purchase price into a manageable one. It requires valuation on both legs and careful capital-gains analysis for the selling shareholder, but it is a live option under the Overseas Investment Rules, 2022 and is materially under-used.

Pricing must be at an arm’s-length price, supported by a valuation from an appropriate valuer in the cases specified in the Overseas Investment Directions. Deferred consideration and earn-outs are workable, but the deferred element must be structured within the permitted framework and reported correctly rather than treated as an off-book adjustment.

Step-by-step FEMA compliance checklist for outbound investment from India

Work through these in sequence. Missing an early step almost always causes a delay at closing.

1. Characterise the investment as ODI or OPI, and confirm that the foreign entity is engaged in a bona fide business activity.
2. Clear the Rule 10 gate: check NPA classification, wilful-defaulter status and pending investigations across the group, and obtain no-objection certificates or start the sixty-day clock.
3. Compute headroom against 400 per cent of net worth and the USD 1 billion annual threshold, counting guarantees at their prescribed reckoning.
4. Board resolution authorising the investment, the maximum financial commitment inclusive of guarantees and security, the mode of funding, the execution of transaction documents, and the authorised signatories.
5. Shareholder approval where the Companies Act, 2013 or the company’s articles require it. Section 186 requires a special resolution beyond the prescribed thresholds, but note section 186(11), which disapplies the section to loans, guarantees and investments made by a holding company in its wholly-owned subsidiary. Many outbound wholly-owned-subsidiary structures need no section 186 special resolution at all. Check sections 180(1)(a) and 180(1)(c), and section 188 where a related party is involved.
6. Valuation of the overseas target or subscription supported by an appropriate certificate where required under the overseas investment framework.
7. AD bank documentation, application, board and shareholder resolutions, valuation, and know‑your‑customer material for the overseas entity.
8. Form FC filed through the AD bank to report the financial commitment and obtain the Unique Identification Number for the foreign entity, before the commitment is made. Subsequent financial commitments under the same UIN are reported in Form FC within thirty days.
9. Remittance of funds only after the reporting and UIN allocation process is complete.
10. Annual Performance Report (Form APR) filed by 31 December each year for the life of the overseas investment, where the Indian entity holds control or 10 per cent or more of the foreign entity.
11. Ongoing disclosures under company law, board minutes, related‑party disclosures and financial‑statement notes.
12. Share certificates or other proof of investment obtained and submitted within the prescribed period.
13. Foreign Liabilities and Assets (FLA) return filed by 15 July each year, routinely forgotten by companies that diligently file their APRs.
14. Disinvestment reported in Form FC within thirty days, with proceeds repatriated within the prescribed period.

Define acronyms once and keep them consistent internally: ODI (Overseas Direct Investment), OPI (Overseas Portfolio Investment), Form FC (the reporting form for financial commitment, restructuring and disinvestment in a foreign entity), APR (Annual Performance Report), UIN (Unique Identification Number), AD bank (Authorised Dealer bank).

A note on what does not apply. Form FC-TRS is a form under the Foreign Exchange Management (Non-Debt Instruments) Rules, filed on the FIRMS portal for transfers of Indian securities between residents and non-residents. It has no application to outbound investment. Transfers and disinvestments in the outbound regime are reported in Form FC. This is a common and consequential error in outbound checklists.

Legacy ODI defaults: the late submission fee window closed in August 2025

The facility introduced in August 2022 to regularise past ODI defaults — delayed Form FC filings, missing proof of investment, unfiled Annual Performance Reports, unrepatriated proceeds — carried a three-year sunset that expired on 22 August 2025.

The late submission fee route remains available for ordinary reporting delays going forward, on the uniform computation matrix. But legacy contraventions that were not regularised before the sunset now fall to be compounded under the Foreign Exchange (Compounding Proceedings) Rules, 2024, which revised the compounding framework and the delegation of authority within the RBI. Note that compounding by RBI officers is unavailable where a similar contravention occurred within three years of a previous one, a term the rules leave undefined.

The practical consequence is straightforward: run an ODI compliance audit before you approach an AD bank for a new deal. An unfiled APR from 2019 sitting against an existing UIN is exactly the kind of thing that surfaces at the worst possible moment, and the cheap fix is no longer available.

Typical timelines and key friction points

Timing is where deals slip. Realistic estimates, assuming clean documentation:

• Automatic route filings: once board and shareholder approvals and valuation are in hand, AD bank processing and UIN allocation typically take a matter of days to a few weeks, depending on the bank’s queries.
• Approval route: add materially more time for RBI review; build several additional weeks into the schedule and prepare for follow‑up questions.
• Post-transaction reporting: Form FC must be filed within the prescribed windows, and the Annual Performance Report by 31 December each year. Treat these as hard deadlines, not housekeeping.

The most common friction points are an unresolved Rule 10 no-objection requirement, historic reporting defaults against an existing UIN, incomplete KYC on the foreign entity, valuation queries, mismatches between board resolutions and the actual transaction terms, and unclear source-of-funds documentation. Resolve all six before you approach the AD bank. Note also that the Indian filings are rarely what sets the outside date: host-country investment screening and merger control usually are.

Transaction vehicles for structuring outbound acquisitions, comparison and recommended uses

The centrepiece decision is the vehicle. The table below compares the three principal structures across the dimensions that matter for structuring outbound acquisitions. Read it alongside the decision framework above.

Our position: default to the simplest structure that achieves the commercial goal. Add an SPV layer only when the treaty, financing or multi-asset rationale is real and you are prepared to fund genuine substance, and only after you have asked where the global minimum tax lands. Layers you cannot justify commercially are liabilities, not assets, in the current enforcement climate. Note the distinction between the two timelines in the table: FEMA processing is rarely the constraint, while host-country screening, merger control and financing conditions usually are.

Jurisdiction selection factors for an overseas subsidiary in India’s outbound structures

When an SPV is warranted, jurisdiction choice among Singapore, the Netherlands, the United Arab Emirates, Mauritius and GIFT IFSC turns on a consistent set of factors:

• Treaty coverage. Does the jurisdiction have a comprehensive double taxation avoidance agreement (DTAA) with India and with the downstream target country, and what are the applicable withholding rates on dividends, interest and royalties?
• Substance requirements. Each of these jurisdictions now expects economic substance, local directors, premises, decision‑making and staff proportionate to the activity. A brass‑plate company will not hold up.
• BEPS and reporting. Country‑by‑country reporting, the Multilateral Instrument, and principal‑purpose‑test provisions can deny treaty benefits where obtaining that benefit is one of the principal purposes of the structure.

• Pillar Two. For groups above the EUR 750 million consolidated revenue threshold, ask where the top-up tax lands before you ask where the withholding tax is lowest. A vehicle with a low effective rate may simply transfer the benefit to another jurisdiction’s revenue authority.

• Permanent establishment risk. How your people operate and where decisions are made can inadvertently create a taxable presence.
• Enforcement and rule of law. Speed and reliability of dispute resolution, and the ease of enforcing shareholder and security rights.
• Time and cost to incorporate and to build the substance the structure needs.

Singapore and the Netherlands are frequently chosen for genuine holding and financing hubs with strong substance and treaty networks; the UAE for regional operating and holding platforms; and GIFT IFSC increasingly for groups that want an Indian time-zone platform without a specific third-country treaty position. Mauritius requires particular care. The 2016 protocol introduced source-based capital-gains taxation with grandfathering for shares acquired before 1 April 2017. A further protocol signed on 7 March 2024 introduces a revised preamble and a principal purpose test, but has not yet entered into force for want of notification under section 90; the Mauritian Cabinet approved ratification in July 2026. CBDT Circular No. 1/2025 dated 21 January 2025 clarifies that bilateral principal purpose test provisions apply prospectively and that the pre-April 2017 capital-gains grandfathering sits outside their scope. Any opinion on a Mauritius structure written before that circular should be revisited, and any opinion written now should state the ratification position as at its date. The common denominator across all of these jurisdictions in 2026 is that treaty benefits follow substance and beneficial ownership, not a certificate of incorporation.

Five structuring options the standard outbound analysis omits

Cross-border merger. Section 234 of the Companies Act, 2013 read with the Foreign Exchange Management (Cross Border Merger) Regulations, 2018 permits the merger of an Indian company into a foreign company, provided the foreign company is incorporated in a jurisdiction notified in Annexure B to the Companies (Compromises, Arrangements and Amalgamations) Rules. RBI approval is deemed where the scheme complies with the 2018 Regulations. The trade-off is the NCLT timetable against the elegance of a single combined entity. The inbound direction, merging a foreign holding company into its Indian wholly-owned subsidiary, has been eased through the fast-track route, which matters for groups unwinding an offshore holding structure.

GIFT IFSC as an outbound platform. For FEMA purposes, India’s International Financial Services Centre is treated as a jurisdiction outside India. An Indian entity can therefore make ODI into an IFSC vehicle which in turn holds or finances offshore assets, with the advantages of the Indian time zone, familiarity with Indian governing law, the IFSCA regulatory framework and a competitive tax regime. For groups that do not need a specific treaty position, this is now a serious alternative to a Singapore or Mauritius holding company, and it materially simplifies the substance conversation.

Overseas branch or project office. Not every outbound expansion needs an entity. A branch of the Indian company, or a project office established to execute a specific contract, may be the right answer for services businesses and EPC contractors. There is no ODI, no UIN and no APR, but the branch’s profits fall directly into the Indian tax base and permanent-establishment exposure is immediate rather than contingent.

Acquisition vehicle with debt push-down. For leveraged acquisitions, a BidCo in the target’s jurisdiction that raises local debt and pushes it down to the target can align interest deductions with the profits that service them. Two Indian constraints apply: the overseas investment framework permits debt to be extended to a foreign entity only where the Indian entity has made equity investment and holds control; and interest paid to non-resident associated enterprises is subject to the 30 per cent of EBITDA thin-capitalisation limitation carried into the Income-tax Act, 2025. Model the deduction before you assume it.

Contractual joint venture. Distribution, licensing, manufacturing and co-development arrangements achieve much of what an equity joint venture achieves, with no ODI, no partner lock-in and a much shorter path to market. For a first entry into an unfamiliar jurisdiction, a two-year contractual arrangement with an option to acquire is frequently the better commercial answer than an immediate fifty-fifty.

Tax implications of outbound investment and repatriation planning

Tax outcomes often decide whether an outbound investment structure creates or destroys value. Note at the outset that the operative statute has changed: the Income-tax Act, 2025 governs Tax Year 2026-27 onwards, while the Income-tax Act, 1961 continues to govern earlier years and pending proceedings. Rates, holding periods and substantive principles are broadly preserved; section numbering is not. The core issues to plan for:

• Indian tax residency and worldwide income. An Indian resident company is taxed on its worldwide income, so foreign income and gains flow into the Indian tax base, subject to credit for foreign taxes paid.
• Capital gains on sale of overseas shares. Long-term capital gains are taxed at a uniform 12.5 per cent without indexation for transfers on or after 23 July 2024, a position the Finance Act, 2026 left unchanged, with a twenty-four-month holding period for unlisted shares. The removal of indexation materially changes exit modelling for investments held through inflationary periods, so run the numbers on the actual asset rather than assuming the old twenty-per-cent-with-indexation outcome was worse. Gains may also be taxable in the host country, making treaty allocation and holding-period planning central.
• Withholding taxes and foreign dividends. Dividends, interest and royalties paid up the chain attract host-country withholding, mitigated where a double taxation avoidance agreement reduces the rate and where the recipient is the genuine beneficial owner. On the Indian side, note the change most repatriation models still miss: the concessional 15 per cent rate on dividends received by an Indian company from a foreign company in which it held 26 per cent or more was withdrawn with effect from assessment year 2023-24. Foreign dividends now enter the Indian tax base at the applicable corporate rate, with foreign tax credit for host withholding. The mitigant is the deduction available where the Indian company on-distributes the dividend to its own shareholders, the successor to section 80M, which effectively defers the charge to shareholder level. If your model still shows 15 per cent, it is four years out of date.
• Permanent establishment. Operating models that create a PE in the host country expand the local tax footprint.
• Transfer pricing. Intra-group services, royalties, guarantees and financing between the Indian parent, the SPV and the target must be at arm’s length and documented under the transfer-pricing provisions of the Income-tax Act, 2025. A guarantee fee that was never charged is the single most frequent adjustment in outbound structures.
• Anti-deferral and substance exposure. India still has no standalone controlled foreign company regime, and that is not comfort. The general anti-avoidance rules, now in Part T of the Income-tax Act, 2025, place-of-effective-management principles and the transfer-pricing rules can each pull the income of a low-substance, India-controlled SPV back into charge.

• Global minimum tax. For groups above EUR 750 million of consolidated revenue, GloBE top-up tax may arise in a jurisdiction that has implemented Pillar Two even though India has not, which can neutralise the entire benefit of a low-taxed holding vehicle.
• Thin capitalisation. Interest paid or payable to a non-resident associated enterprise is limited to 30 per cent of EBITDA, which constrains debt push-down and intra-group financing structures.

Withholding, dividend repatriation and timing

Plan the repatriation pathway before signing, not after. A simple illustration shows why the vehicle choice matters:

• Direct route: the foreign target pays a dividend to the Indian company. The target country applies its domestic or treaty withholding rate; India then taxes the dividend, allowing a foreign tax credit for the tax withheld. The effective cost is driven by the India–target treaty rate.
• SPV route: the target pays a dividend to a treaty-resident SPV that qualifies as beneficial owner, potentially at a lower withholding rate; the SPV then distributes to India. This can reduce leakage, but only if the SPV has genuine substance, survives the principal purpose and beneficial-ownership tests, and, for in-scope groups, does not simply relocate the tax to a top-up charge elsewhere. Absent substance, the anticipated treaty saving disappears and the structure attracts scrutiny at both ends.

The disciplined approach is to model both routes on real numbers, confirm foreign tax credit availability in India, add the annualised cost of maintaining substance, and then decide whether any incremental SPV saving justifies it. Procedurally, foreign tax credit is claimed under section 159 of the Income-tax Act, 2025 for treaty relief, capped at the lower of foreign tax paid and Indian tax attributable to the foreign income, and computed country-wise and source-wise. The statement is Form 44 under Rule 76 of the Income-tax Rules, 2026 for income from Tax Year 2026-27; Form 67 continues for financial year 2025-26 and earlier, including where filed after 1 April 2026. Diarise this, because foreign tax credit has been denied for late filing often enough to be a known trap. Where the incremental saving does not clear the substance and compliance cost with a margin, choose the direct route.

Transfer pricing and documentation requirements

Every cross-border intra-group flow — management services, royalties, guarantees, loans — must be priced at arm’s length and supported by contemporaneous documentation under the Indian transfer-pricing provisions. Practically, that means signed intercompany agreements that reflect actual conduct, benchmarking analyses supporting the pricing, and documentation prepared in the year of the transaction rather than reconstructed under audit. Where thresholds are met, master file and country-by-country reporting obligations also apply. Weak transfer-pricing files remain the most common cause of avoidable disputes in outbound structures.

Corporate governance: board and shareholder approvals

Clean corporate approvals under the Companies Act, 2013 are the foundation the AD bank and any counterparty will rely on. Prepare a governance pack covering:

• Board resolution approving the investment, the maximum financial commitment inclusive of guarantees and security, the funding mode, the execution of transaction documents, and the appointment of authorised signatories.
• Shareholder resolution, ordinary or special as required, where the investment engages the statutory limits on investments and loans in section 186, subject to the wholly-owned-subsidiary carve-out in section 186(11); sections 180(1)(a) and 180(1)(c) where assets or borrowings are affected; and section 188 where a related party is involved, or provisions in the articles.
• Power of attorney and authorised‑signatory language enabling execution and filings across time zones.
• Minute‑book discipline, accurate minutes that match the resolutions and the executed documents, plus related‑party and financial‑statement disclosures.

• Layering. Section 2(87) of the Companies Act, 2013 and the Companies (Restriction on Number of Layers) Rules, 2017 restrict Indian companies to two layers of subsidiaries, but expressly do not apply to the acquisition of a company incorporated outside India having subsidiaries beyond two layers as permitted by the laws of that country. This is separate from, and should not be confused with, the round-tripping restriction in the Overseas Investment Rules, 2022.

Take a position on sequencing: obtain the approvals before you commit contractually or remit funds. Retrospective ratification is possible but invites regulatory and audit questions you do not need.

Regulatory risk: round‑tripping rules, beneficial ownership and enforcement

Round-tripping, where funds leave India and return, directly or indirectly, into Indian assets through an overseas layer, is specifically addressed by the Overseas Investment Rules, 2022. The 2022 framework in fact liberalised the position: a structure in which the foreign entity invests back into India is now permissible under the automatic route, provided it does not result in more than two layers of subsidiaries. That is a genuine relaxation from the pre-2022 position and it is frequently misdescribed as a general prohibition. Structures that move value out and back with no commercial purpose remain vulnerable to being treated as abusive regardless of layer count.

Red flags that attract scrutiny include:

• Investment into a low‑substance conduit that on‑invests back towards India or Indian‑connected assets beyond permitted limits.
• Circular fund flows, unexplained source of funds, or financing that lacks commercial logic.
• SPVs whose beneficial ownership is obscured or inconsistent with the declared structure.
• Local JV partners who appear to be fronts rather than genuine operators.

Mitigation is straightforward in principle: build economic substance, disclose fully, document source of funds and beneficial ownership, and seek RBI approval where the position is uncertain. Obligations under the Prevention of Money Laundering Act, 2002 framework and beneficial-ownership expectations reinforce the same discipline, and AD banks now apply noticeably more rigorous diligence where the host jurisdiction appears on FATF call-for-action or increased-monitoring lists. The OECD’s BEPS standards on treaty abuse and beneficial ownership sit behind treaty-benefit denials, so a structure that is transparent to Indian regulators must also be defensible internationally.

The other side of the deal: host-country screening and merger control

This is where outbound timetables actually break, and it deserves equal billing with FEMA in your deal plan.

European Union. The new foreign investment screening regulation, approved by the Council on 8 June 2026, requires all Member States to maintain a screening mechanism and mandates prior authorisation across a common minimum sectoral scope covering dual-use items and military equipment, critical raw materials, artificial intelligence, quantum technologies, semiconductors, energy, transport and digital infrastructure. Critically for Indian groups, it extends to investments made through EU-incorporated subsidiaries. The new rules apply eighteen months after entry into force, so national regimes govern in the interim.

EU Foreign Subsidies Regulation. In force since 2023, with mandatory notification for concentrations meeting EU turnover and foreign financial contribution thresholds. Indian acquirers with any history of state support, concessional financing from public sector banks, or production-linked incentive benefits need to map their financial contributions early: the data-gathering exercise alone routinely takes six to eight weeks.

United Kingdom and United States. The National Security and Investment Act 2021 imposes mandatory notification across seventeen sensitive sectors with no de minimis, and completing a notifiable acquisition without approval renders it void. In the United States, CFIUS imposes mandatory filings for certain critical-technology and TID businesses.

India’s own merger control. Do not forget the Competition Commission of India at the outbound end. The deal-value threshold introduced by the Competition (Amendment) Act, 2023 captures acquisitions of global targets that have substantial business operations in India and that would previously have escaped the asset and turnover tests.

Practical drafting consequences. Build screening into the transaction documents: split signing and closing; conditions precedent tied to each identified clearance; a long-stop date that reflects the slowest regulator rather than the fastest; allocation of regulatory risk through hell-or-high-water or best-efforts covenants; and a ticking fee where the seller bears timing risk. Warranty and indemnity insurance is now standard in European mid-market deals, and Indian acquirers should price it in rather than treating it as exotic.

Practical deal playbook, pre‑closing to post‑closing

A disciplined playbook keeps an outbound investment India transaction on schedule and audit‑ready.

Pre‑deal diligence:

• FEMA and RBI feasibility, confirm the route, limits and any prior‑approval triggers early.
• Tax structuring, model host withholding, Indian tax credit, capital-gains exposure, global minimum tax impact and repatriation.
• Legal, financial and operational due diligence on the target.
• Sanctions, KYC and anti‑money‑laundering screening of the target, counterparties and funds.
• Beneficial‑ownership mapping across the proposed structure.

• An audit of your own ODI compliance history: outstanding UINs, historic Form FC filings, unfiled Annual Performance Reports and FLA returns.
• Regulatory mapping across every affected jurisdiction: foreign investment screening, the Foreign Subsidies Regulation, and merger control including the CCI deal-value threshold.

Closing deliverables:

• Executed transaction documents consistent with board and shareholder approvals.
• Valuation certification where required.
• AD bank package complete, with Form FC ready to file and remittance sequenced correctly.

• All conditions precedent satisfied and evidenced, with the funds flow sequenced against the UIN.

Post‑closing compliance:

• File Form FC within the prescribed windows and submit proof of investment.
• Obtain and record the Unique Identification Number for the overseas entity.
• Update statutory registers, minutes and disclosures.
• Diarise the Annual Performance Report and every recurring filing for the life of the investment.
• Implement transfer‑pricing agreements and documentation from year one.
• Maintain substance evidence at the SPV on an ongoing basis.

• File the Foreign Liabilities and Assets return by 15 July each year.

Exit, planned at entry

• Report the disinvestment in Form FC within thirty days and repatriate the proceeds within the prescribed period.
• Remember that a transfer of an overseas investment engages the Rule 10 no-objection requirement again.
• Model the Indian capital-gains charge at 12.5 per cent without indexation alongside any host-country charge and the treaty allocation between them.
• Confirm that write-off of an investment, where required, falls within the conditions the framework permits rather than assuming it.

Choosing advisers and building your internal project team

Outbound deals fail on coordination as often as on substance. Assemble a small, accountable team:

• External counsel for FEMA/RBI, corporate and cross‑border transaction structuring.

• Host-jurisdiction counsel engaged early enough to run the investment-screening and merger-control analysis, not after signing.

• Tax advisers in India and the relevant host and SPV jurisdictions, working to a single agreed model.
• The AD bank engaged early on filings and remittance mechanics.
• Company secretary owning approvals, minutes and statutory filings.
• Escrow and trustee agents where the deal mechanics require them.
• A named internal owner, usually in‑house counsel or the CFO’s office, running a fixed board‑reporting cadence.

Short worked example, a typical outbound acquisition structure

Consider an Indian manufacturing company acquiring a mid-sized operating business in a European market, with plans to add further bolt-on targets in the region. Because there is a genuine multi-asset and financing rationale, the company establishes a substance-backed holding SPV in a treaty jurisdiction with local directors and real decision-making, rather than buying the target directly. The group sits below the EUR 750 million global minimum tax threshold, so the treaty saving is not neutralised by top-up tax, a question asked and answered before incorporation rather than after. Before approaching the AD bank, the company runs an internal ODI audit and finds two unfiled Annual Performance Reports against a dormant UIN from a 2019 investment; because the late-submission-fee window closed in August 2025, these are regularised through compounding, taking three months of lead time that would otherwise have surfaced as a closing delay. The target sits within the mandatory screening scope of its Member State, so signing and closing are split, with the investment-screening clearance and a Foreign Subsidies Regulation notification as conditions precedent and a long-stop date set nine months out. The board approves a financial commitment figure that expressly includes the corporate guarantee to the acquisition financier. Form FC is filed, the UIN obtained, funds remitted, and transfer-pricing agreements including a priced parent guarantee govern intra-group flows from day one.

Had the company been buying a single target with no expansion plans, the direct route would have won on simplicity, the same discipline, applied to different facts, points to a different answer.

Key takeaways and recommended checklist

For any outbound investment India decision in 2026, the guidance reduces to a short set of rules:

• Characterise the investment as ODI or OPI first; that single call determines the entire filing path.

• Match the structure to the commercial purpose, default to the simplest route that works.
• Confirm the FEMA and RBI route, the financial commitment limits and any Rule 10 no-objection requirement before you commit; treat filing deadlines as hard.
• Use an SPV only where treaty, financing or multi‑asset rationale is genuine, and fund real substance, within the permitted layering rules.
• Model tax and repatriation on real numbers, including foreign tax credit availability.
• Get board and shareholder approvals in place before signing or remitting.
• Keep beneficial ownership transparent and source of funds documented to avoid round‑tripping exposure.
• Build transfer‑pricing documentation and Annual Performance Report discipline from year one.

• Count the whole financial commitment, including guarantees at their prescribed reckoning, against the 400 per cent and USD 1 billion limits.
• Ask the global minimum tax question before the withholding tax question if your group is in scope.
• Update your citations: the Income-tax Act, 2025 governs from Tax Year 2026-27, Form 44 replaces Form 67, and treaty relief flows through section 159.
• Do not use Form FC-TRS in an outbound checklist; Form FC covers commitment, restructuring and disinvestment.
• Start the host-country screening clock first; the EU, UK and US regimes usually drive the timetable, not the RBI.

Frequently asked questions on outbound investment from India

Do I need RBI approval to acquire a company abroad?

Usually not. Most acquisitions by Indian non-financial companies of overseas operating businesses proceed under the automatic route, without prior RBI approval, provided the total financial commitment stays within 400 per cent of net worth and USD 1 billion in a financial year, the activity is not prohibited or restricted, and no Rule 10 no-objection requirement is triggered. Prior approval is needed where those parameters are exceeded, for regulated financial-sector entities, and for investment into Pakistan.

What is the difference between ODI and OPI?

ODI is the acquisition of unlisted equity capital of a foreign entity, subscription to its memorandum, acquisition of 10 per cent or more of a listed foreign entity, or a smaller stake accompanied by control. Everything else within the framework is OPI. ODI carries Form FC, a Unique Identification Number and annual reporting for the life of the investment; OPI is reported far more lightly.

Is Form FC-TRS required for an overseas acquisition?

No. Form FC-TRS is an inbound form under the Foreign Exchange Management (Non-Debt Instruments) Rules for transfers of Indian securities between residents and non-residents. Outbound transfers and disinvestments are reported in Form FC.

How long does an outbound investment take to complete?

The FEMA steps typically take two to six weeks once board and shareholder approvals and the valuation are in hand. The deal itself usually takes three to nine months, because host-country investment screening, merger control and financing conditions, rather than the Indian filings, set the outside date.

Can an Indian company issue its own shares to buy a foreign target?

Yes. A swap of securities is a permitted mode of funding under the Overseas Investment Rules, 2022. It requires valuation on both legs and careful capital-gains analysis, and it is materially under-used by Indian acquirers.

What happens if we missed an Annual Performance Report in earlier years?

The three-year window to regularise legacy defaults through the late submission fee closed on 22 August 2025. Historic contraventions now fall to be compounded under the Foreign Exchange (Compounding Proceedings) Rules, 2024. Ordinary reporting delays going forward can still use the late submission fee mechanism.

Is Mauritius still a viable holding jurisdiction for Indian outbound structures?

It depends on the fact pattern. The protocol signed on 7 March 2024 introducing a principal purpose test has not yet been notified under section 90, and the Mauritian Cabinet approved ratification only in July 2026. CBDT Circular No. 1/2025 confirms that bilateral principal purpose test provisions apply prospectively and that pre-April 2017 capital-gains grandfathering sits outside their scope. The position should be re-verified as at the date of any advice.

Does the global minimum tax apply to Indian companies investing abroad?

India has not enacted the GloBE rules, but that does not make them irrelevant. An Indian-headquartered group above EUR 750 million of consolidated revenue with entities in jurisdictions that have implemented Pillar Two — Singapore, the UAE, the Netherlands and most of the EU among them — can face top-up tax there regardless of India’s position.

Can a promoter invest personally alongside the company?

A resident individual may make ODI under the Liberalised Remittance Scheme, but only into an operating foreign entity that is not engaged in financial services and that does not have a subsidiary or step-down subsidiary in which the individual has control. This frequently prevents the promoter’s holding from mirroring the corporate structure.

About the author

Bhupender Singh is the Founder and Managing Partner of Artham Law Chambers, a boutique law firm with offices in Mumbai, Bangalore, NCR and Jaipur. He has over eighteen years of experience in indirect tax, customs, FEMA, PMLA and cross-border regulatory advisory, and appears regularly before the CESTAT and the Bombay High Court. His practice covers outbound and inbound investment structuring, exchange control, GST and customs litigation, and data protection under the Digital Personal Data Protection Act, 2023. Before founding Artham Law Chambers in 2021 he worked at Lakshmikumaran & Sridharan, Luthra & Luthra, BMR Advisors and PwC India.

Need advice on an outbound investment?

This article was produced by Global Law Experts. For specialist advice on outbound structuring, FEMA and RBI routing, ODI compliance audits, cross-border tax and regulatory approvals, contact Bhupender Singh at  Artham Law Chambers, a member of the Global Law Experts network. You can view his full Global Law Experts profile and areas of expertise, or reach the firm at www.arthamlaw.com.

This article is for general information and does not constitute legal advice. Positions stated are current as at the date of publication. The ratification status of the India-Mauritius Protocol and the commencement timetable for the EU investment screening regulation should be verified before reliance.

Sources

1. Reserve Bank of India (RBI)
2. Foreign Exchange Management Act, 1999 (FEMA), India Code
3. Ministry of Corporate Affairs (MCA), Companies Act, 2013
4. Income Tax Department, India
5. Central Board of Direct Taxes (CBDT)
6. OECD, BEPS
7. OECD, Transfer Pricing Guidance
8. Directorate General of Foreign Trade (DGFT)
9. Supreme Court of India