FEMA and RBI Compliances
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FEMA has acted as an important source for the growth and development of various sectors in India. The purpose of introducing Foreign Exchange Management Act, 1999 (FEMA) is to facilitate external trade, balance payments, promote the orderly development, and maintain the healthy foreign exchange market in India. Whenever a Foreign Investor invests in India or an Indian Investor invest outside, he needs to comply with regulations framed under FEMA by Directorate of foreign trade and Reserve Bank of India.
In India, Foreign Direct Investment (‘FDI’) inflows have been witnessing increase every year. Similarly, Indian companies are going global by investing abroad in the recent past.
The importance of FEMA compliances is indispensable considering the fact there are penal consequences in case of non-compliances. There are lots of Annual Compliances specified under FEMA for Indian Companies having FDI and for Indian entities having investments in overseas Joint Venture (‘JV’) and/or Wholly Owned Subsidiary (‘WOS’) (‘collectively referred as ODI’).
Our portfolio of services under contract management includes
a. Setting up business in India (Company Registration for Foreign Nationals)
The First and the foremost step for the entry in India is to set up a business in India. There are various modes that are available for setting up business in India which includes Incorporation of Wholly-Owned Subsidiary Company, Joint Venture Company, Project Office / Liaison office / Branch office of a Foreign Company in India.
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b. Foreign Exchange Law compliance management
Below is the list of important compliance to be followed under the provisions of FEMA:
Annual return for Foreign Liabilities and assets i.e. FLA Return is required to be submitted mandatorily by all the India resident companies which have received FDI or made ODI in any of the previous year, including current year
If the Indian company does not have any outstanding investment in respect of FDI or ODI as at the end of the reporting year, the Company need not submit the FLA Return.
Similarly, if the Indian company has not received any fresh FDI or ODI in the latest year but the company has outstanding FDI and/or ODI, then that company is still required to submit the FLA Return every year by 15 July every year.
An Indian Party, Resident Individual which has made an Overseas Direct Investment (ODI) has to submit an Annual Performance Report (APR) in Form ODI Part II to the AD bank in respect of each Joint Venture, Wholly Owned Subsidiaries (WOS) outside India on or before 31st December every year.
Borrowers are required to report all ECB transactions to the RBI on a monthly basis through an AD Category – I Bank in the form of ‘ECB 2 Return’ on a monthly basis.
Under the head Single Master form FC-GPR, FC-TRS, LLP-I, LLP-II, CN, ESOP, DI, DRR, InVi are to be filed and submitted. The Reserve Bank of India (the “RBI”), on September 1, 2018, released a user manual (the “SMF Manual”) to clearly set out the procedure for filing a single master form (the “SMF”), which it introduced on June 7, 2018, to integrate the existing reporting norms for foreign investment in India.
It is a form issued by RBI under Foreign Exchange Management Act,1999. When the company receives the foreign investment and against such investment the company allots shares to such foreign investor then it is the duty of the company to file details of such allotment of shares with The RBI within 30 days and for that company has to use the form FC-GPR (Foreign Currency- Gross Provisional Return) for submitting details with RBI. (Read More about Form FC-GPR).
The literal full form of Form FC-TRS is Foreign Currency Transfer. It is a form used by shareholder resident outside India resident Indian or vice versa when they transfer their shares. The form FC-TRS along with the Form FC-GPR will be submitted to its authorised dealer bank, who will submit the same to the RBI. (Read More about Form FC-TRS).
An Indian Party and a Resident Individual making an overseas investment is required to submit form ODI. When they receive share certificates or any other documentary evidence of investment in the foreign JV / WOS as an evidence of investment and submit the same to the designated AD within 30 days.
Important FEMA Guidelines and Features
Most significantly, FEMA regarded all forex-related offences as civil offences, whereas FERA regarded them as criminal offences. Additionally, there were other important guidelines such as:
c. Assistance in Overseas Direct Investments
Advisory on outbound structuring and RBI Reporting.
d. Refund of Share Application Money
To make investment in a Company the first step is providing of Share Application to Investee Company, which shall be allotted within 60 Days (as per Companies Act, 2013), if the same is not within the stipulated time, the whole amount shall require to be refunded to the Investor. We help in simplifying this complex task with its expertise and skills in this arena. The Procedure includes filling of necessary documents and Liaisoning with AD Bank.
e. Advisory on foreign Policies and procedures in India and Transfer of shares
The Stakeholders are required to comply with the RBI compliances in the following manner for Transfer of shares between residents and non-residents and vice-versa. The Form FCTRS should be submitted to the AD bank, within 60 days from the date of receipt of the amount of Consideration. The Onus of the submission of the Form FCTRS within the given period would be on the transferor/transferee, resident of India. The Transfer of shares are subject to the KYC check by the remittance receiving AD bank at the time of receipt of funds. The AD bank should scrutinize the transactions and on being satisfied about the transactions should certify the form FC-TRS as being in order.
