FEMA & RBI Rules for Indians Setting Up a CompanyAbroad (2026)

Before you pick a jurisdiction, before you even talk to a company formation agent, there’s a more basic question every Indian entrepreneur needs answered first: is this even legal, and how much money am I actually allowed to send out of India to do it?

This is the question we get asked first, every time, by clients looking at the UAE, BVI, Singapore, or Malaysia. Not “which jurisdiction is cheapest”. That comes later. First: what does Indian law let me do, and where do I get in trouble if I get it wrong?

Here’s the plain-language version of FEMA, RBI’s Overseas Direct Investment (ODI) rules, and the Liberalised Remittance Scheme (LRS), the three things that actually control whether, and how, you can own a company outside India.

Indian residents are allowed to own and invest in companies abroad. This isn’t a grey area or a loophole. It’s a regulated, legitimate route under the Foreign Exchange Management Act (FEMA), 1999, and RBI’s Overseas Investment Rules, 2022.

But “allowed” comes with three hard boundaries:

Get any one of these wrong, and the problem doesn’t show up when you set the company up. It shows up later, when you try to remit more money, open a bank account, or wind the company down.

If you’re setting up the company as an individual, not through an existing Indian company, your remittance comes out of your Liberalised Remittance Scheme (LRS) allowance.

The limit is USD 250,000 per financial year, per individual. That’s not just for company setup. It’s a combined cap that also covers things like funding a child’s education abroad, buying property overseas, or gifting money to relatives abroad. If you use $100,000 of it on a trip and property deposit, you have $150,000 left for your company that year.

A few things that catch people off guard:

• It resets every financial year (April to March), not every calendar year.
• Every adult in your family has their own $250,000 allowance. If your spouse is also a shareholder or director, that’s a second $250,000 you can legitimately bring into the structure.
• It covers the whole transaction, not just share capital. If you’re wiring money for incorporation fees, registered agent costs, and initial paid-up capital, all of it counts against the same limit.

If your plan needs more than $250,000 in year one, say, you need $400,000 in working capital for a Singapore trading company, individual LRS alone won’t get you there. That’s when it usually makes sense to set the company up through an existing Indian company rather than as an individual (see Rule 2).

RBI treats your overseas investment differently depending on whether you’re taking a real, controlling stake in an operating business (ODI) or making a small, passive investment in something like foreign-listed shares (Overseas Portfolio Investment, or OPI, a separate, lighter-touch category).

Setting up and running your own company abroad, which is what most of our clients are doing, falls under ODI. Two numbers matter here:

• Individuals invest through their LRS allowance, as above.
• Indian companies (if you’re routing the investment through an existing Pvt Ltd rather than personally) can invest up to 400% of the Indian company’s net worth under the automatic route, with no prior RBI approval needed, as long as the activity is a genuine, lawful business (not real estate trading, not an unlicensed financial services business, and not gambling).

The “automatic route” distinction matters: most straightforward company setups, such as trading, consulting, tech, and services, qualify automatically. A few categories (certain regulated financial activities and investment in countries on FATF’s higher-risk list) need specific RBI approval first. This is usually a five-minute conversation with your advisor to confirm before you proceed, not a blocker.

This is the part people miss, because it doesn’t come up until a year or two later.

Every overseas investment needs to be reported to RBI through your bank (your Authorised Dealer, or AD bank). There’s a reporting form filed at the time you invest, and then an Annual Performance Report (APR) every single year the foreign company exists, confirming it’s still active and reporting its basic financials.

Here’s why this matters more than it sounds like it should: miss your APR filings, and RBI can block you from making any further remittance to that company, meaning no more capital and no more working capital top-ups, until you’re compliant again. We’ve taken on clients who set up cleanly elsewhere and then got stuck here, simply because nobody told them the paperwork doesn’t end at incorporation.

“Round-tripping” is when money flows from India into your foreign company, and then back into India in a way that’s structured to dodge India’s own foreign investment rules. For instance, using a BVI company you own to “invest” into an Indian company you also own, to get around sector caps or valuation rules that would otherwise apply.

RBI’s 2022 rules loosened some of the older restrictions here. Certain downstream-investment structures are now permitted, but this remains the single area where “I didn’t realize that was a problem” causes the most pain. If any part of your plan involves money eventually flowing from your overseas company back into an Indian business you’re connected to, that structure needs to be checked before you set it up, not after.

The core FEMA, ODI, and LRS rules above apply no matter where you’re incorporating. The differences between jurisdictions are mostly about local cost, tax treatment, and banking, not about what India allows you to send. We’ve written jurisdiction-specific breakdowns for each:

• UAE company setup for Indian entrepreneurs (links to UAE company setup guide).
• BVI company formation for Indian entrepreneurs (links to BVI company formation guide).
• Singapore company registration for Indian founders (links to Singapore company registration guide).
• Malaysia company incorporation for Indian investors (links to Malaysia company incorporation guide).