Every company having Foreign Direct Investment (FDI), is required to report Reserve Bank of India (RBI). Herein, we are not describing and defining FDI and the same can be find in another article. The RBI, in the First Bi-monthly Monetary Policy Review dated April 5, 2018 announced that, with the objective of integrating the extant reporting structures of various types of FDI in India, it will introduce a Single Master Form (SMF) subsuming all the existing reports.
In order to implement this announcement, on 7 June 2018, the RBI vide A.P (DIR Series) Circular No. 30 dated June 07, 2018 (“FDI Circular”) issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (“FEMA”) has introduced an online application, FIRMS (Foreign Investment Reporting and Management System), which provide for the SMF a new reporting framework for reporting of FDI by Indian Entities (including companies, LLP and start-ups).
SMF provide a facility for reporting total FDI in an Indian Entity {as defined in Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations 2017, dated November 7, 2017}, as also investment by persons resident outside India in an Investment Vehicle.
The RBI via aforesaid FDI Circular also introduced an interface, namely Entity Master Form (“EMF”), to the Indian entities, to input the details of the total FDI received by them as on the date of creation of thee EMF account.
Further, the RBI, on September 1, 2018, released a user manual (“SMF Manual”) to clearly set out the procedure for filing a SMF, which it introduced on June 7, 2018, to integrate the existing reporting norms for foreign investment in India.
Under SMF Manual it was decided that FIRMS would be made online in two phases. In the first phase, the first module viz., the Entity Master, was made available online. Instructions in this regard were already issued through A. P. Dir. Series Circular No. 30 dated June 07, 2018. In the second phase, the second module is being made available with effect from September 01, 2018. With the implementation of SMF, the reporting of FDI, which is presently a two-step procedure viz., ARF and FC-GPR is merged into a single revised FC-GPR. With effect from September 01, 2018, five forms viz., FC-GPR, FC-TRS, LLP-I, LLP-II and CN were being made available for filing in SMF. The other three forms viz., ESOP, DI, and DRR are being made available for filing with effect from October 23, 2018. Form InVI would be made available subsequently. With effect from September 01, 2018, all new filings for the 5 forms and other three forms viz., ESOP, DRR and DI with effect from October 23, 2018 have to be done in SMF only.
In view of the above, it is stated that RBI vide A.P (DIR Series) Circular No. 30 dated June 07, 2018 (FDI Circular) issued under sections 10(4) and 11(1) of FEMA, simplified the FDI reporting by the Indian Entities, by consolidating 9 different forms viz., FC-GPR Form, FC-TRS Form, LLP (I) Form, LLP (II) Form, CN Form, DRR Form, ESOP Form, DI Form and InVI Form, in one master form, namely Single Master Form (SMF), through which the Indian entities can do FDI reporting, without using the digital signature certificates of the authorised signatories. With the introduction of the SMF, the RBI also dispensed with the requirement of filing the advance reporting form the form by the Indian companies.
Further, pursuant to the introduction of the aforesaid FDI reporting norms, the Indian entities are now required to create an EMF account and SMF account on FIRMS portal by using the procedure mentioned therein.
It is important to note that the creation of EMF account is the first step and it is an entity specific account i.e. the Indian Entity can create only one EMF account on FIRMS portal. After the EMF account is created, the Indian entity can proceed to create the SMF account on FIRMS Portal, which is an Authorised Dealer Bank -Indian Bank (AD Bank) specific account.
The applicant/person reporting for the transaction in SMF should register as Business User (‘BU’) on FIRMS Portal. Where the BU is filing the SMF in the capacity of an individual, the authority letter need not be on the Entity’s letterhead (format provided SMF Manual). A BU can use his login credentials for only the entity that has authorized him/her to report the transactions. If the person wants to act as a BU for another entity, he must register himself separately. After creating the Business User, go for logging into FIRMS and click SMF and choose type of any form out of 9 forms available on the FIRMS portal.
An Indian entity can create multiple SMF accounts to report the FDI transactions where the said transactions are carried out through different AD Banks. This specific account of AD shall be carefully selected so that the reporting is made to the correct branch of the bank. [The applicant shall be versed with the working model of his/her bank for the foreign investment reporting in terms of the branches which are operating for the approval/rejection of the reported forms in the FIRMS application. Not all branches are incorporated in the FIRMS application, but only those as specified by the respective bank. If the applicant is unable to find its respective branch under the IFSC code, he/she may contact its branch for clarification on this issue].
The AD Bank with whom the application is filed has a maximum time limit of 5 working days to approve or reject the application or forward the same to the RBI (applicable only in exceptional cases). With the implementation of EMF and SMF, the provision of seeking clarification/resubmission of the application has been done away with. The Indian entity receives the outcome of the application through an e-mail registered on the FIRMS portal. In case of rejection of the application, the reasons for rejection are mentioned in the e-mail, the which can be subsequently \discussed and ratified by the Indian entity with its AD Bank, prior to the submission of the fresh application for its timely closure.
Remark: Processing of the applications in consolidated SMF form in given timeframe has eased the reporting of FDI transactions. However, there is a practical limitation associated with the filing of the application in SMF account that only one application can be processed at given point of time across all the SMF account(s) of an Indian entity and unless the said application is approved/rejected, the Indian entity cannot file another application on any of its SMF account(s).
FDI reporting timelines on FIRMS Portal.
Pursuant to the amendments to FEMA through Finance Act, 2015, recently, the Ministry of Finance notified the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (“NDI Rules”) vide Notification No. 3732(E) dated 17th October, 2019 and Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2019 [please see article Central Government now empowered to specify classes of permissible capital account transactions in respect of Non- Debt Instruments” published on tax guru on 05.10.2020]
The RBI issued the Foreign Exchange Management (Debt Instrument) Regulations, 2019. Consequent to issue of NDI Rules by Finance Ministry, RBI has issued Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 (“Regulations”) vide Notification No. G.S.R 795(E) dated 17th October, 2019.
The Regulation gives a clear picture about mode of payment, remittance of sale proceeds, reporting requirements etc. with respect to issue or transfer of securities. The regulations provide for the following timelines within which the Indian Entities are required to complete the FDI reporting on FIRMS Portal.
Pursuant to Regulation 4 of the Regulations, the reporting requirement for any investment in India by a person resident outside India (“PROI”) [herein, we are not defining PROI and the same can be find in another article] shall be as follows:
(a) Form FC-GPR (Foreign Currency-Gross Provisional Return)– An Indian company issuing equity instruments to a PROI for FDI should file Form FC-GPR, within 30 days from the date of issuance of the equity instruments.
(b) Form FC-TRS (Foreign Currency-Transfer of Shares)– For transfer of equity instruments between
i) PROI holding equity instruments on a repatriable basis and PROI holding equity instruments on a non-repatriable basis, and
ii) **PROI holding equity instruments on a repatriable basis and a person resident of India.
Form FC-TRS should be *filed within 60 days of transfer of equity instruments or receipt/remittance of funds, whichever is earlier.
*the onus of reporting shall be on the resident transferor/transferee or the PROI holding equity instruments on a non-repatriable basis, as the case may be.
* Transfer of equity instruments in accordance with the rules by way of sale between a PROI holding equity instruments on a non-repatriable basis and Person resident in India is not required to be reported in Form FC-TRS.
(c) Form LLP(I)– A Limited Liability Partnership (LLP) receiving the amount of consideration for the capital contribution should file Form LLP(I), within 30 days from the date of receipt of the amount of contribution.
(d) Form LLP(II)– The resident transferor/transferee, as the case may be, should file Form LLP(II), within 60 days of the receipt of the amount of consideration, for transfer of capital contribution, from a resident to a non-resident (or vice-versa).
(e) Form CN – The Indian start-up company issuing convertible notes to a person resident outside India should file Form CN, within 30 days from the date of issuance of the convertible notes. Further, the resident transferor/transferee should file Form CN, within 30 days of the transfer of the convertible notes issued by an Indian start-up company, from a resident to a non-resident (or vice-versa).
(f) Form DRR– The domestic custodian issuing/transferring the depository receipts, in accordance with the Depository Receipt Scheme, 2014 should report in Form DRR, within 30 days of issuance/transfer of depository receipts.
(g) Form ESOP– An Indian company issuing employees’ stock option to persons resident outside India who are its employees/directors or employees/directors of its holding company/joint venture/wholly owned overseas subsidiary/subsidiaries should file Form ESOP, within 30 days from the date of issuance of employees’ stock option.
(h) Form DI– An Indian entity or an investment Vehicle making downstream investment in another Indian entity which is considered as indirect foreign investment for the investee Indian entity should file Form DI, within 30 days from the date of allotment of equity instruments.
(i) Form InVI– An Investment vehicle which has issued its units to a person resident outside India should file Form InVI, within 30 days from the date of issuance of units.
Out of above 9 forms, there are also other reporting requirements under Regulation 4 of the Regulations like Form FLA (Annual Return on Foreign Liabilities and Assets), LEC(FII) and LEC(NRI).
Form FLA (Annual Return on Foreign Liabilities and Assets)- An Indian Company which has received FDI or an LLP which has received investment by way of capital contribution in the previous year including the current year, shall submit form FLA to the RBI on or before 15th day of July of each year. Herein, year means April to March.
Delay in Reporting: The said Regulations (under Regulation 5) also provides that any delay in reporting would attract Late Submission Fees (LSF), which may be decided by the RBI, in consultation with the Central Government. In cases, where the RBI imposes LSF, the application would deem to be approved on payment of the LSF and receipt of the acknowledgment in respect thereof, from the RBI.
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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.
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