APR Filings under ODI: Understanding Audit Requirements for Overseas Subsidiaries

The Annual Performance Report (APR) is a cornerstone compliance requirement under India’s Overseas Direct Investment (ODI) framework. In reality, it often becomes a pain point—especially for startups and small overseas subsidiaries.

One issue that repeatedly comes up is the audit of the foreign entity’s financial statements.

Recently, we reached out to the Authorised Dealer (AD) Banks for seeking clarity on the latest developments in the reporting framework. AD banks have provided us with a practical and much-needed clarification that:

If it is not mandatorily required for the foreign entity to get its financial statements audited under host country laws, the financial statements may be audited by an Indian Chartered Accountant (CA) for the limited purpose of APR filing.

This article explains the regulatory aspect, the AD bank’s clarification, and the practical approach that can be adopted to ensure hassle-free compliance.

APR Filing under the ODI Framework: What you need to know

Under the existing Overseas Investment framework, every Indian entity or resident individual having made and holding an ODI are required to submit the APR in respect of each foreign entity.

Basic Important points before going forward:

• APR must be filed on or before 31 December every year
• Filing is required irrespective of whether the foreign entity is operational, dormant, or loss-making
• APR is to be submitted through the designated AD Bank
• Financial information shall be based on audited financial statements, wherever applicable

The RBI revised the ODI framework (effective August 2022), which led to the shifting of the operational and practical responsibility to the AD Banks, making their interpretation and internal policy critically relevant for compliance.

The Practical Challenge: Audit Cost in Foreign Jurisdictions

For many Indian companies/Individuals, maintaining an early-stage, "dormant" or low-activity subsidiary abroad comes with an expense burden: the audit bill. Local laws in many overseas jurisdictions spare small private companies, early-stage subsidiaries, or low-turnover entities from mandatory audits.

However, hiring a foreign CPA for an audit engagement solely for APR purposes often results in disproportionately high compliance costs, especially when the entity has minimal or no activity.

Recognising this challenge, AD Banks in consultation with the RBI have decided to provided operational flexibility.

Audit by an Indian CA: Is it allowed or not?

One of the most common question for an Indian entity/individual having ODI is whether his Indian CA could audit the financials of the overseas subsidiary. Now, there is finally a conclusion to it. The AD Banks have clarified that:

If the foreign entity is not required to undergo a statutory audit under the laws of the host country, the financial statements may be audited by an Indian Chartered Accountant for APR filing purposes.

This update is in line with the RBI's goal of ensuring everyone follows the rules without being forced to pay for unnecessary costs. However, this flexibility isn't automatic—there are a few specific conditions you need to keep in mind:

1. Audit exemption must be supported: The foreign entity should clearly fall outside the audit requirement as per the host country law.
2. Audit to follow host country accounting norms: Even when conducted by an Indian CA, the financials must be prepared in accordance with applicable host country regulations.
3. Mandatory Disclosure in Audit: The audit report should clearly state that:
4. The audit is conducted solely for APR / FEMA compliance, and It is based on the host country's audit requirements.
5. Final discretion rests with the AD Bank: Acceptance of such audit reports is subject to the AD Bank’s internal policy and satisfaction.

When is this Relaxation Not Available?

It is crucial to note that:

• If the host country mandates a statutory audit, the accounts must be audited by a locally authorised auditor in that jurisdiction.
• An Indian CA cannot substitute a mandatory foreign statutory audit.
• This distinction is critical and may often become a point of objection during APR scrutiny.

Auditor’s Certificate: Is There a Prescribed Format?

There is no standard format prescribed by the RBI for the auditor’s certificate for conducting a foreign entity’s financial audit. However, in a practical scenario, the AD Banks can expect the auditor to provide confirmation on:

• Consistency of APR figures with books of account,
• Capital, turnover, profit/loss, and net worth reconciliation,
• Compliance with FEMA and ODI regulations, and
• True and fair presentation of the financial position.

These clear disclosures can significantly reduce the risk of unnecessary queries or resubmission.

Why does this Clarification Matters?

This update from the banks is more than just a clarification — it’s a big relief for Indian investors having overseas investments. Here is how it makes life easier:

• Economically feasible: One have to no longer pay massive fees to a foreign CPA just to prepare an audit report, especially if your overseas company is small or just a start up.
• Simplified approach: It removes a major hurdle for Indian businesses growing abroad, making the whole process feel much smoother and simpler.
• Practical rules: Instead of a "Compliance-heavy" approach, the rules can feel realistic and helpful for smaller subsidiaries.
• Stress-free deadlines: Since one can work with an Indian CA, it becomes much easier to coordinate and get the APR filed on time without waiting weeks for overseas auditors.

However, improper documentation or assumptions can still result in APR rejection or prolonged compliance follow-ups.

Conclusion:

APR filing cannot be merely considered a routine formality—it is a critical compliance checkpoint under India’s regulatory framework. While the RBI notifications and AD Bank’s clarifications have introduced much-needed flexibility, the onus remains on the investor to ensure accurate interpretation and proper disclosures.

Indian companies and resident individuals should:

• Assess the host country's audit laws prior to
• Align documentation with AD Bank expectations, and
• Seek professional guidance to avoid last-minute obstacles.

At Kamdar Desai & Patel LLP, we regularly assist our clients with foreign entity setup, interpretation of host country audit requirements, ODI structuring and end-to-end FEMA compliance, cross border transactions, and other FEMA related compliances. With years of experience in cross-border taxation and regulatory advisory, our team of professionals correctly evaluates ownership and control and aligns with the latest RBI amendments. For professional assistance, connect with us at enquire@kdpaccountants.com , we will help you and provide clear and practical advice on overseas investments and its reporting.

Om Bhamare
Author

Om Bhamare is a CA Final student currently in the last year of his articleship, where he specializes in Indian Foreign Exchange laws, foreign investments, overseas direct investments (ODI), AIF-related RBI compliances, and other regulatory reportings under the RBI framework. Om has gained hands-on experience in advising clients on overseas investments and their compliance under the RBI framework. His technical proficiency extends to resolving complex EDPMS/IDPMS issues for large-scale clients and managing key compliances under income tax laws and FEMA for foreign subsidiaries.
Driven by a calm and disciplined mindset, Om has a passion for continuous learning and a keen interest in finance and Capital Markets with an aim to contribute significantly to the fields of international finance and regulatory compliance.