Wealthy Indian Investors Open New ‘Window’ For Overseas Crypto Bets

Savvy investors and family offices use the “Overseas Direct Investment” (ODI) route to bet on cryptocurrencies overseas with the Liberalized Funds Transfer Facility (LRS) – the usual window for offshore investments of high net worth residents – closed for these exotic digital assets.

These very wealthy individuals use a non-bank financial company – preferably an existing local entity – to sponsor a foreign investment company, a wholly owned subsidiary, in a financial center like Dubai. The funds used to capitalize this overseas arm are invested in overseas securities and assets, including cryptos sold on trading platforms outside India.

“Unlike the LRS regime which restricts direct investment in the financial services sector abroad, the ODI regime allows regulated financial services companies to invest in the financial services sector under approval. Such investment is subject to the prior approval of the relevant financial regulators in India and Once a duly approved overseas direct investment is made in an overseas financial services company, that entity should be able to ‘undertake activities in accordance with applicable laws in the relevant foreign jurisdiction,’ said Moin Ladha, a partner at law firm Khaitan & Co.

Sensing Reserve’s strong reservations about crypto, major private and foreign banks have asked investors remitting funds under LRS to pledge that the money will not be used to buy crypto. (This followed local payment systems prohibiting funds transfers for crypto transactions as part of an informal unofficial ban imposed by RBI).


Under these circumstances, ODI has become a convenient avenue for large investors who can handle the paperwork. The foreign affiliate – which can receive investments of up to four times the net worth of the local NBFC promoting it – is governed by the laws of the country in which it is incorporated (not Indian regulations).

“Technically, this may not be welcomed by the RBI if the foreign investment firm’s investment is largely in cryptos. But the central bank may never know about it from the annual information that the RBI receives… The RBI usually does not. ask for their balance sheets,” says a consultant specializing in foreign exchange regulations.

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Every year, the overseas investment companies (established under the ODI route) submit basic information such as address, capital, turnover, distribution and profit to the designated bank (management remittances), which in turn uploads the data with RBI.

Thanks to the crackdown on crypto trading in India, many are finding ways to hold crypto overseas. For example, some consultants and software professionals receive fees from foreign clients in relatively stronger cryptocurrencies like Ethereum. Some, even after signing the LRS pledge with the banks, then invest the money transferred to an overseas bank account in cryptos – a transaction that can then bring them under regulatory scrutiny. Another transaction pursued by some involves transferring funds as a “gift” to children before they travel abroad to study, then withdrawing up to $1 million per year from the NRO (non- ordinary resident) of the latter. (The local account to which the funds are transferred is converted to an NRO account after the family member, i.e. account holder, moves overseas.)

In addition to blocking payment channels and imposing high income tax on profits from crypto exchanges, in July the local crypto community must deal with the 1% tax deducted at source on each selling crypto (regardless of whether the money is earned). The combination of these factors pushes investors to afford access to foreign crypto markets, despite the risks. Especially since most investors believe it would be impossible for the Indian government to collect TDS on cut trades in overseas markets.

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Wealthy Indian Investors Open New ‘Window’ For Overseas Crypto Bets

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