An ESOP granted by an overseas parent may begin as an employee incentive, but once the employee acquires securities in the foreign entity, the transaction enters the domain of India's overseas investment regime. The classification of such investment as OPI or ODI can have significant consequences for investment limits, reporting and compliance.
Regulatory Regime
The regulatory foundation for the concerned topic lays in the FEMA (Overseas Investment) Rules, 2022. The rules introduced by the Government of India on August 22, 2022, marked a significant reform in the regulatory framework governing overseas investments by persons resident in India. The new framework includes the Foreign Exchange Management (Overseas Investment) Rules, 2022, the Foreign Exchange Management (Overseas Investment) Regulations, 2022, and the Foreign Exchange Management (Overseas Investment) Directions, 2022.