Ensure compliance with the Foreign Exchange Management Act (FEMA) by filing the Foreign Liabilities and Assets (FLA) annual return. Understand who needs to file, the filing process, and consequences of non-compliance. Stay informed for smooth operations in foreign investments.
With the increasing involvement of companies in foreign investments, adherence to the regulations of the Foreign Exchange Management Act (FEMA) and ensuring compliance has become a crucial aspect of their operations. One of the compliance requirements that companies engaged in Foreign Direct Investments (FDI) or investing in foreign companies, either through joint ventures or wholly owned subsidiaries (referred to as Overseas Direct Investment or ODI), must meet is filing the FLA (Foreign Liabilities and Assets) annual return. This annual return should encompass all foreign investments made by the company, either outgoing or incoming, and must be directly submitted to the Reserve Bank of India.
Who needs to file the FLA return?
According to the regulations under FEMA, 1999, any company that has engaged in ODI (Outward Foreign Direct Investment) or received FDI is required to file the FLA annual return. The companies must report the FLA for the current financial year, along with the assets and liabilities from the previous year(s). If a company does not possess any foreign assets or liabilities in the current year but has outstanding FDI or ODI from previous year(s), it must file the FLA annual return, indicating the outstanding assets and liabilities.
Therefore, the following entities are required to file the FLA return:
1. A Company as defined in Section 1(4) of the Companies Act, 2013.
2. A Limited Liability Partnership (LLP) registered under the Limited Liability Partnership Act, 2008.
3. Others, including SEBI registered Alternative Investment Funds (AIFs), Partnership Firms, Public Private Partnerships (PPP), etc.
How to file the FLA return?
Entities can submit the FLA return through the online web-based portal called Foreign Liabilities and Assets Information Reporting (FLAIR) system. The portal’s address is https://flair.rbi.org.in/fla/faces/pages/login.xhtml.
The entity should register on the portal by clicking on “Registration for New Entity Users.” Fill in the details in the FLA user registration form, upload the required documents (Verification Letter and Authority Letter), and click submit to complete the registration process. After successful registration, the user ID and default password will be sent to the authorized person’s email ID. Using this user ID and password, entities can log in to the FLAIR portal and file the FLA return. The company can download the draft return, review it, and make any necessary corrections before submitting it to the Reserve Bank of India (RBI). Upon final submission, the reporting Indian company will receive an acknowledgement of the FLA data submitted by the company through the system. No separate email will be sent by the RBI in this regard.
Consequences of not filing the FLA return:
As per the amendment in A.P. (DIR Series) Circular No.16 dated September 30, 2022,The Late Submission Fee (LSF) was introduced for reporting delays in Foreign Investment (FI), External Commercial Borrowings (ECBs) and Overseas Investment related transactions with effect from November 07, 2017, January 16, 2019, and August 22, 2022 respectively. The imposition of LSF has been standardized to ensure uniformity across functions.
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