Most Canadian incorporation providers stop at the certificate of incorporation. The Indian side, which can still cause penalties years later, is often left to the founder. As a Company Secretary, I regularly meet founders who incorporated abroad, wired money from a savings account as a “gift to myself”, and only discovered the ODI rules when their bank or a tax notice raised a question.
This guide explains, in practical terms, what India requires when a resident individual invests in a Canadian company: the conditions, limits, forms, deadlines, and what happens if you have already missed them. The same rules apply if your foreign company is in the US, UK, or elsewhere.
In This Guide
- What Is ODI, and Why It Applies to Your Canadian Company
- Do I Need RBI Approval to Start a Company in Canada?
- FEMA Rules for Resident Individuals Starting a Company Abroad
- LRS Limit for Foreign Company Investment
- How to Send Money from India to Your Canadian Company: Step by Step
- Ongoing Reporting: Form OI, APR and Changes
- TCS on Your Remittance
- Income Tax Side: Schedule FA, Dividends and DTAA
- What If I Already Invested Without Following ODI Rules?
- Individual vs Indian Company as the Investor
- FAQs
What Is ODI, and Why It Applies to Your Canadian Company
India’s overseas investment framework, the Foreign Exchange Management (Overseas Investment) Rules, Regulations and Directions of 2022, divides investment abroad into two types. Overseas Portfolio Investment (OPI) generally covers investments in foreign securities that do not qualify as ODI. Overseas Direct Investment (ODI) covers investments in unlisted foreign companies and certain investments in listed foreign entities.
Your own Canadian corporation is unlisted, so an investment in its shares will generally be treated as ODI, regardless of the amount. The applicable requirements depend on the nature and structure of the investment, not simply on whether you own 100% or 10%, or whether the company is incorporated in Ontario, British Columbia, or federally.
Do I Need RBI Approval to Start a Company in Canada?
Generally, no. Investment by a resident individual in a permitted foreign business can fall under the automatic route, meaning you do not usually apply to the RBI in advance. Instead, the transaction is handled and reported through your Authorised Dealer (AD) bank, which acts as the intermediary for the RBI-related compliance process. Prior approval may be required in certain cases that fall outside the automatic route.
FEMA Rules for Resident Individuals Starting a Company Abroad
The 2022 framework allows resident individuals to make ODI, subject to conditions. In practice, these are especially important for a founder setting up a company in Canada:
- Operating entity only. The Canadian company must carry on a permitted business activity, such as services, trading, software, or manufacturing. Restrictions apply to investments in shell entities and entities engaged in certain prohibited activities.
- Restrictions on financial services. Resident individuals face restrictions on making ODI in foreign entities engaged in financial services activities, such as lending, insurance, and investment management.
- Restrictions on subsidiaries. Specific conditions apply to controlled foreign entities and their step-down subsidiaries. The proposed ownership structure should be checked before incorporation.
- Within the LRS limit. The investment must comply with the Liberalised Remittance Scheme limit and other applicable conditions.
- One AD bank. ODI transactions for the foreign entity generally need to be routed through the designated AD bank in accordance with the applicable rules.
If your plan involves the Canadian company owning other companies, offering financial services, or being funded by an Indian company, the analysis may change. Seek professional advice before remitting funds.
LRS Limit for Foreign Company Investment
Under the Liberalised Remittance Scheme (LRS), a resident individual can generally remit up to USD 250,000 per financial year for permitted purposes, including overseas investment, education, travel, and gifts. Your ODI investment in the Canadian company counts towards this overall limit. If you have already used part of the limit for a child’s tuition, for example, only the remaining balance is available for your company during that financial year.
For many founders, this limit may not be a constraint because Canadian incorporation does not generally require a minimum share capital. Initial share capital is often modest. However, if you plan to fund larger operations, consider the timing of remittances across financial years or whether an Indian company should make the investment instead. The latter follows a different regulatory framework.
How to Send Money from India to Your Canadian Company: Step by Step
| Step | What Happens | Who Is Involved |
|---|---|---|
| 1. Incorporate in Canada | Obtain the certificate of incorporation, articles, and share structure documents. | You and your Canadian adviser |
| 2. Choose your AD bank | Select an authorised dealer bank to handle the ODI transaction and future reporting. | You |
| 3. Submit documents | Provide Form OI details, incorporation documents, share subscription papers, KYC documents, and the LRS declaration, as applicable. | You and your CS |
| 4. Obtain a UIN | The AD bank arranges a Unique Identification Number for the foreign entity, where required. | AD bank |
| 5. Remit share capital | Transfer funds for the investment through the prescribed banking channel, following the AD bank’s instructions. | AD bank |
| 6. Receive share documents | The Canadian company issues shares. Retain the share certificate and related corporate records and provide evidence to the AD bank when required. | Canadian company |
| 7. Complete ongoing compliance | Submit required annual performance reports, disclose foreign assets in the ITR, and report further investments or disinvestment. | You and your CS |
A practical tip: open the Canadian company’s bank account before remitting funds, if possible. Sending share capital to a Canadian business account in the company’s own name can help create a clear paper trail for both your AD bank in India and your Canadian bank.
Our guide on opening a Canadian business bank account covers the available options.
Talk to DKP Global: India and Canada, One Team
Offices in Gurugram and Surrey, BC. Canadian incorporation, CRA registrations, bookkeeping, and India-side ODI/FEMA compliance handled together.
India: +91-9990424342
Canada: +1-672-833-4342
Email: info@dkpglobal.org
Canada Company Registration Services: Visit Now
Ongoing Reporting: Form OI, APR and Changes
| Filing or Event | When | Notes |
|---|---|---|
| Form OI | Within the applicable reporting period, generally within 30 days of the investment | Filed through the AD bank, as required |
| Annual Performance Report (APR) | Generally by 31 December each year, where applicable | Based on the foreign entity’s financial statements; exemptions and eligibility conditions may apply |
| Further investment | Within the applicable reporting period | Each additional investment or remittance must be reported as required |
| Disinvestment or closure | Within the applicable reporting period | Selling the investment or winding up the Canadian company may trigger reporting obligations |
| Change in structure | As applicable | New shareholders, share transfers, and restructuring may require reporting |
The APR is where many founders run into difficulties. It may require the Canadian company’s annual financial statements, so your Canadian books need to be closed and maintained on time. This is another reason to keep bookkeeping current on the Canadian side.
TCS on Your Remittance
Tax Collected at Source (TCS) may apply to remittances under LRS. The applicable rate and threshold depend on the purpose of the remittance and the rules in force for the relevant financial year. For certain overseas investment remittances, TCS may be collected at 20% on the amount exceeding ₹10 lakh in a financial year.
TCS is generally not a final tax. The amount collected can be reflected in your tax records and adjusted against your income tax liability, subject to the applicable rules. Any eligible excess may be claimed through your income tax return. Plan for the cash-flow impact if you intend to remit a substantial amount at once, and confirm the current rate and threshold with your AD bank or tax adviser before transferring funds.
Income Tax Side: Schedule FA, Dividends and DTAA
Holding shares in a Canadian company may constitute ownership of a foreign asset. If you qualify as a resident and ordinarily resident individual under Indian tax law, you generally need to disclose reportable foreign assets in Schedule FA of your income tax return each year, subject to the applicable disclosure rules.
Non-disclosure can lead to significant penalties under the Black Money Act. The applicable provisions and any available relief depend on the circumstances, so confirm your reporting obligations with a tax adviser.
When the Canadian company pays you a dividend, Canada may withhold tax at source, and India may also tax the dividend according to the applicable tax rules. The India-Canada Double Taxation Avoidance Agreement (DTAA) may allow relief from double taxation, subject to eligibility and documentation requirements. Form 67 may be required to claim foreign tax credit in India.
Salary or fees paid by the Canadian company for work performed in India can raise separate questions involving income tax, transfer pricing, and other compliance requirements. Discuss these arrangements with your adviser before putting them in place.
What If I Already Invested Without Following ODI Rules?
You are not alone, and some reporting delays can be corrected. Depending on the nature of the contravention, delayed reporting may be eligible for regularisation through a late submission fee (LSF) under the applicable RBI framework. Other contraventions may require a different process, including compounding with the RBI, where permitted.
The applicable fee, eligibility, time limits, and process depend on the specific reporting lapse and the rules in force. FEMA penalties can be substantial, so it is generally better to review and address an issue promptly rather than wait for a notice.
If you have already incorporated and funded a Canadian company informally, collect your remittance records, Canadian incorporation documents, share certificates, and related banking correspondence. Then consult a qualified Company Secretary or other professional familiar with ODI/FEMA compliance.
At DKP Global, we assist clients with reviewing and regularising such cases.
Individual vs Indian Company as the Investor
If you already run an Indian private limited company, it may be possible for that company to hold shares in the Canadian company instead of you investing personally. Indian companies make ODI under a different framework, with limits and conditions that may be linked to their net worth. Subject to the applicable rules, an Indian company may also provide loans or guarantees to its foreign subsidiary.
This route may offer more flexibility for certain group structures, but it also involves company-level reporting and can lead to different tax outcomes on dividends and other payments.
Decide on the ownership structure before incorporating in Canada, where possible. Changing shareholders later can create additional filings and compliance work in both countries.
Frequently Asked Questions
Under India’s Overseas Investment framework introduced in 2022, a resident individual may invest in a permitted foreign business, subject to applicable conditions, LRS limits, AD bank procedures, and reporting requirements. Form OI and annual performance reporting may apply depending on the investment and circumstances.
Usually, permitted investments that qualify under the automatic route do not require prior RBI approval. They must still follow the applicable rules and be processed through an Authorised Dealer bank.
The general LRS limit for a resident individual is USD 250,000 per financial year across permitted remittances. Overseas investment counts towards this limit.
Money intended to purchase shares or fund an investment should be classified and reported according to the actual transaction. Calling an investment a gift does not remove applicable ODI or FEMA obligations.
Form OI is used for reporting overseas investment through the AD bank under the applicable overseas investment framework. The relevant reporting deadline depends on the transaction and the applicable requirements.
Where an Annual Performance Report is required, the general due date is 31 December, subject to applicable rules and exemptions. The report relies on information about the foreign entity, including its financial position.
TCS may apply to remittances under LRS. The applicable rate and threshold depend on the purpose of the remittance and the rules in force for that financial year. Confirm the current treatment with your AD bank or tax adviser.
Resident and ordinarily resident individuals generally need to disclose reportable foreign shareholdings in Schedule FA, subject to the applicable Indian tax rules.
Some reporting delays may be regularised through the applicable late submission fee process. More serious contraventions may require other regulatory steps. Have the transaction reviewed promptly by a qualified professional.
Yes, an Indian company may be able to make ODI in a Canadian company, subject to the applicable eligibility requirements, limits, and reporting obligations. Loans and guarantees may also be possible where permitted.
Final Word
Setting up a company in Canada from India is a two-country process. Canadian incorporation is only one part of the job. Indian ODI compliance helps protect you from FEMA-related consequences and keeps your banking and tax records in order. Getting the reporting and documentation right from the first remittance can make ongoing compliance easier.
At DKP Global, I lead the India-side FEMA and ODI work from Gurugram, while Amanpreet’s team handles the Canadian company in Surrey. One team, both countries.
Start with our Canada company registration services, or speak to us about reviewing and regularising an existing investment.
Summary Box
- Investing in your Canadian company from India may qualify as ODI under FEMA, subject to the applicable conditions and route.
- Key considerations include the nature of the business, ownership structure, LRS limits, and routing transactions through the appropriate AD bank.
- Form OI, APR, and other reporting requirements depend on the transaction and applicable rules.
- TCS treatment depends on the purpose of the remittance and the rules in force for the relevant financial year.
- Foreign shareholdings may need to be disclosed in Schedule FA, depending on your Indian tax residency and reporting obligations.
- Do not misclassify an investment as a gift. If filings were missed, seek professional advice promptly.
Call: +91-9990424342 (India) | +1-672-833-4342 (Canada)
Email: info@dkpglobal.org