FDI related filing requirements

What is Foreign Direct Investment(FDI)?

A Foreign Direct Investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country.

Some of the concepts covered under FDI are discussed below :

A. Form Foreign Currency-Gross Provisional Return (FCGPR):

In accordance with Notification No. FEMA 20(R)/ 2017-RB

An Indian company issuing capital instruments to a person resident outside India and where such issue is reckoned as Foreign Direct Investment, for the purpose of these regulations, shall report such issue in Form FC-GPR to the Regional Office concerned of the Reserve Bank under whose jurisdiction the Registered office of the company operates, not later than thirty days from the date of issue of capital instruments. Issue of ‘participating interest/ rights’ in oil fields shall be reported Form FC-GPR.

In accordance with Notification No. RBI/FED/2015-16/13

The following cases / instances of issue of shares / capital instruments to persons resident

outside India by an Indian company will require filing of Form FC-GPR,

(a) bonus or rights shares directly or on amalgamation/ merger with an existing Indian company

(b) capital instruments on account of a cross border merger in terms of Notification 389/ 2018 dated March 20, 2018;

(c) shares against any funds payable by the Indian company to the person resident outside India; (d) sweat equity shares and shares issued upon exercise of employees stock option in terms of FEMA 20(R); (e) Issue of shares on conversion of convertible notes.

(i) Allotment of shares under Initial Public Offer (IPO) or Qualified Institutional Placement (QIP) under the applicable SEBI Regulations need not be reported in Form FC-GPR

(ii)26In case the Indian company issues shares to a person resident outside India other than to the person resident outside India from who the inward remittance has been received, the form FC-GPR has to be filed along with the following documents:

(a) KYC reports of both the remitter and the beneficial owner.

(b) A no-objection certificate (NOC) from the remitter for issuing capital instruments to the beneficial owner mentioning their relationship.

(c) A letter from the beneficial owner explaining the reason for the remitter making remittance on its behalf.

(d) A copy of agreement / board resolution from the investee company for issuing capital instruments to a person other than from who the remittance has been received.

B. Foreign Currency-Transfer of Shares (FC-TRS):

In accordance with Notification No. . RBI/FED/2015-16/13

a) The actual inflows and outflows on account of transfer of shares shall be reported by the AD branch in the R-returns in the normal course.

b) Foreign Currency-Transfer of Shares (FC-TRS)

1) Form FCTRS is required to be filed for transfer of capital instruments in accordance with FEMA 20(R), between:

i) a person resident outside India holding capital instruments in an Indian company on a repatriable basis and person resident outside India holding capital instruments on a non-repatriable basis; and

ii) a person resident outside India holding capital instruments in an Indian company on a repatriable basis and a person resident in India,

2) Transfer of capital instruments in accordance with FEMA 20(R) between a person resident outside India holding capital instruments on a non-repatriable basis and person resident in India is not required to be reported in Form FC-TRS.

3) Sale of capital instruments on a recognized stock exchange by a person resident outside India as prescribed in regulation 10(3) of FEMA 20(R) has to be reported by such person in Form FC-TRS.

4) Transfer of capital instruments prescribed in regulation 10(9) of FEMA 20(R) viz., payment on deferred basis, shall be reported in Form FC-TRS to the AD bank on receipt of every tranche of payment. The onus of reporting shall be on the resident transferor/ transferee.

5) Transfer of ‘participating interest/ rights’ in oil fields shall be reported Form FC-TRS.

6) Form FCTRS is required to be filed by the Indian company buying back shares in a scheme of merger/ de-merger/ amalgamation of Indian companies approved by NCLT/ competent authority.

7) The form FCTRS has to be filed with the AD bank within sixty days of transfer of capital instruments or receipt/ remittance of funds whichever is earlier.

C. Advance Remittance Form (ARF)

In accordance with Notification No. FEMA 20(R)/ 2017-RB

An Indian company which has received amount of consideration for issue of capital instruments and where such issue is reckoned as Foreign Direct Investment for the purpose of these regulations, shall report such receipt (including each upfront/ call payment) in ARF to the Regional Office concerned of the Reserve Bank, not later than 30 days from the date of receipt.

In accordance with Notification No. . RBI/FED/2015-16/13

The following documents shall be submitted along with the ARF:(a) copy/ies of the FIRC/s (Foreign Inward Remittance Certificate evidencing the receipt of the remittance; (b) Know Your Customer (KYC) report on the non-resident investor from the overseas bank remitting the amount in the mentioned form”

D. Annual Return on Foreign Liabilities and Assets (FLA):

In accordance with Notification No. FEMA 20(R)/ 2017-RB

An Indian company which has received FDI or an LLP which has received investment by way of capital contribution in the previous year(s) including the current year, should submit form FLA to the Reserve Bank on or before the 15th day of July of each year.

Explanation: Year for this purpose shall be reckoned as April to March.

In accordance with Notification No. . RBI/FED/2015-16/13

An annual return on Foreign Liabilities and Assets (FLA) is required to be submitted directly by all the Indian companies which have made FDI abroad (i.e. overseas investment) in the previous year(s) including the current year, to the Director, External Liabilities and Assets Statistics Division, Department of Statistics and Information Management (DSIM), Reserve Bank of India.

The Annual Return on FLA is available on the RBI website (www.rbi.org.in → Forms category → Foreign Exchange Management Act Forms) which can be duly filled-in, validated and sent by e-mail, by July 15 every year.

E. Annual Perforamnce Report(APR)

An Indian Party (IP) / Resident Individual (RI) which has made an Overseas Direct Investment (ODI) has to submit an Annual Performance Report (APR) in Form ODI Part III to the Reserve Bank by 30th of June every year in respect of each Joint Venture (JV) / Wholly Owned Subsidiary (WOS) outside India set up or acquired by the IP / RI (as prescribed under Regulation 15 of FEMA Notification, ibid).

With effect from April 13, 2016, the AD bank, before undertaking / facilitating any ODI related transaction on behalf of the eligible applicant, should necessarily check with its nodal office to confirm that all APRs in respect of all the JV / WOS of the applicant have been  submitted. Further, certification of APRs by the Statutory Auditor or Chartered Accountant may not be insisted upon in the case of Resident Individuals. Self-certification may be accepted.

Where the law of the host country does not mandatorily require auditing of the books of accounts of JV / WOS, the Annual Performance Report (APR) may be submitted by the Indian party based on the un-audited annual accounts of the JV / WOS provided:

a) The Statutory Auditors of the Indian party certify that the law of the host country does not mandatorily require auditing of the books of accounts of JV/WOS and the figures in the APR are as per the un-audited accounts of the overseas JV/WOS.

b) That the un-audited annual accounts of the JV / WOS has been adopted and ratified by the Board of the Indian party.

c) The above exemption from filing the APR based on unaudited balance sheet will not be available in respect of JV/WOS in a country/jurisdiction which is either under the observation of the Financial Action Task Force (FATF) or in respect of which enhanced due diligence is recommended by FATF or any other country/jurisdiction as prescribed by Reserve Bank of India.

Compiled & Prepared by- Ms.Jeenia Monga, Articled Intern, Parshotam & Associates, Chartered Accountants, [email protected]

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