So, you’ve made an Overseas Direct Investment (ODI) — maybe set up a subsidiary in the UAE, Singapore, UK, or elsewhere.
But what if that foreign entity hasn’t started operations, hasn’t earned any income, or is operating at a loss?
The answer is clear: FEMA compliance is still mandatory.
This article explains how to stay fully compliant with RBI and FEMA regulations, even when your foreign investment is not yet generating returns.
📘 What Is ODI?
ODI (Overseas Direct Investment) is when a resident Indian entity or individual invests in a foreign Joint Venture (JV) or Wholly Owned Subsidiary (WOS) by way of equity, loans, or guarantees.
Such investment must be reported to RBI through the FIRMS Portal, and the foreign entity is assigned a Unique Identification Number (UIN).
❗ “No Income, No Reporting?” – Common Misconception
A common mistake investors make is thinking:
“The foreign company hasn’t started making money, so I don’t need to file anything.”
❌ WRONG.
Even if:
- The entity is dormant or pre-revenue
- There is no dividend or profit repatriation
- It is operating in loss or development stage
🛑 You still need to comply with FEMA rules.
✅ Key Compliances Even if There’s No Income
1. Annual Performance Report (APR)
- Mandatory even if income is zero or entity is dormant
- Must include net worth, share of loss (if any), and remarks like “no operations”
- Due by 31st December for previous financial year
2. FLA Return (Foreign Liabilities and Assets)
- Filed with RBI via FLAIR Portal
- Required if ODI was made and equity is held as on 31 March
- Even zero-income or inactive entities need to file
- Due by 15 July every year
3. FIRMS Portal Updates
- Maintain your UIN status as “Active”
- If you change the structure, capital, or close the entity, update RBI accordingly
- File ODI Part III for disinvestment or liquidation
4. Schedule FA in Income Tax Return
- Indian investors must disclose foreign assets, equity, and bank accounts
- Even if no income is earned, disclosure is compulsory
- Non-reporting can trigger Black Money Act penalties
🧾 Documentation You Should Maintain
| Document | Purpose |
|---|---|
| Foreign entity’s audited balance sheet | For APR & FLA reporting |
| Board resolutions / ROC forms | To prove capital structure |
| Bank SWIFT/FIRC for capital sent | ODI reporting & proof |
| RBI UIN allotment letter | Base for all compliance |
| Equity certificate from foreign company | For audit/tax reporting |
⚠️ What If You Don’t File?
| Non-compliance | Consequences |
|---|---|
| APR not filed | UIN frozen, no further remittance allowed |
| FLA missed | May affect credit ratings and future FDI/ODI |
| Schedule FA skipped | Risk under Black Money Act – up to ₹10 lakh fine or imprisonment |
| ODI not updated | RBI/ED can initiate compounding or inquiry |
🛠️ Best Practices to Stay Compliant
- 📅 Set calendar reminders for APR (Dec 31) and FLA (July 15)
- 🧮 Maintain simple financials for the foreign entity — even if loss-making
- 🧾 Keep a “FEMA Dossier” for each ODI with all filings and documents
- 📊 File Schedule FA properly, even if no income is shown
✅ Summary
| Situation | Is Compliance Needed? |
|---|---|
| ODI made but no operations | ✅ Yes |
| Entity active but loss-making | ✅ Yes |
| No dividend or income yet | ✅ Yes |
| Foreign company dormant/shut | ✅ Yes, until disinvested and reported |
🤝 Need Expert Help?
We assist with:
- APR & FLA filings (even backdated)
- Setting up ODI-ready accounting systems
- Schedule FA disclosures
- Drafting compounding applications for missed filings
