Since more than a decade foreign investments by Non-Resident in Indian entities including proprietary firms, partnership firms, LLP is expanding, resulting in positive impact on economy and exponential development of Indian businesses. Indian business persons / industrialists having futuristic vision have attracted Foreign Investors to India and have contributed in uplifting of Indian values globally. One must say the “Make in India” initiative of the Government of India would not have been such a huge success without such enthusiastic entrepreneurs.
The Government of India has also extended helping hand to businesses / Industries by implementing its ease of doing business initiative. Further in line with these initiatives the Government has also amended Foreign Investment policies to accommodate its vision from time to time. Moreover, the Government has also introduced a very dynamic law to regulate such Foreign Investments viz. “Foreign Exchange Management Act, 1999” popularly known as FEMA. Apart from Indian Economy, Global events also affect Cross Border Investments in India which are also regulated through FEMA. Thus, FEMA has a gigantic role in businesses / Industries having Foreign Investment.
Although FEMA is a very simple Law generally based on reporting / prior approval / compliance as directed by Reserve Bank of India (RBI), its non-compliance attracts massive penalties (in some cases even up to 3 times the amount involved!!!). Many a time due to lack of knowledge of FEMA Law and sometimes due to inadvertence, one can unintentionally contravene the law and land in huge trouble.
Tax policies, Law enforcements are constantly evolving. Economic and political pressures often lead to changes in tax policy and tax administration that impact markets, businesses and customers vis-à-vis all compliances.
To keep the pace of changing requirements with respect to compliances and procedurals required in respective domain, NR Professionals (hereinafter referred to as NRP) is anxious to assist with its core competency teams who have been witnessing for countless changes effectuated across all laws more specifically laws impacting Cross Border Transactions. So compliances are no more Hussle for clients and they can focus on their business leaving on us all procedural pains. NRP is acting as “FINAL DESTINATION” for all Cross-Border transactions.
(A) FEMA Mandatory Compliances
(A) Instances wherein RBI Approvals are required:
1) Post servicing of External Commercial Borrowing (ECB)/ Foreign Currency Convertible Bond (FCCB) under Automatic and Approval route
2) ECB/FCCB proposals under Approval route
3) Increase in holdings in a company beyond the limit to 24 % up to sectoral cap/ statutory ceiling
4) Conversion of shares from non-repatriation basis to repatriation basis
5) Approval for registration of Foreign Venture Capital Investor (FVCI)
6) Transfer of shares from Non-Resident Indian (NRI) to Non-Resident (NR)
7) Gift of shares from Resident to NRI
8) Permission for establishment of new Liaison Office (LO)/ Branch Office (BO) in India under Approval Route
9) Approvals given for proposals regarding miscellaneous external payments of permissible Current and Capital Account transactions
10) Investment in Overseas Joint Ventures and Wholly Owned Subsidiary (WOS) (not covered by automatic route)
11) Other overseas Investment under approval route
12) Disinvestment of shares in Overseas Joint Ventures / Subsidiaries
13) Allotment of Unique Identification Number (UIN)
14) Issue of fresh license to conduct Money Transfer Service Scheme (MTSS) business
15) Compounding of contraventions of FEMA
16) Issue/ Renewal of Money Changer’s license
(B) Instances wherein Government Approval is required:
1) Approval for establishing additional LO/BO in India.
2) Permission for shifting LO/BO to another city.
3) Permission for opening LO/BO/ Project Office (PO) by entities from China, Hong Kong, Macau, Pakistan, Bangladesh, Afghanistan, Sri Lanka and Iran
4) Permission for establishing PO in India which require GOI approval
5) For transfer/acquisition of immovable property not covered under general permission in terms of Foreign Exchange Management Act, 1999 or the rules/ regulations made thereunder
6) To open Non-Resident Ordinary (NRO) account in consultation with the MoF, GoI
1. Money Changing Activity:
Authorized Money Changers (AMCs) are entities, authorized by the Reserve Bank under Section 10 of the Foreign Exchange Management Act, 1999. An AMC is a Full-Fledged Money Changer (FFMC). In addition to Authorized Dealer Category -I Banks (AD Category–I Banks) and Authorized Dealers Category – II (ADs Category–II), Full Fledged Money Changers (FFMCs) are also authorized by the Reserve Bank to deal in foreign exchange for specified purposes in order to widen the access of foreign exchange facilities to residents and tourists and ensuring efficient customer service through competition.
Compliance Required:
a) Assist in Obtaining FFMC License
b) Assist in maintaining various registers viz. Ranging from FLM 1 to FLM 8
c) Quarterly statements preparation, maintenance and filing with authorities
d) Annual statements preparation, maintenance and filing with authorities
2.Liberalized Remittance Scheme
Resident individuals are permitted to make remittances up to USD 250,000 per financial year for any permitted current or capital account transactions or a combination of both as per the regulations prescribed under the Foreign Exchange Management Act, 1999. A2 declaration form is required to be given to Ad-1 Bank.
3. Establishment of BO/PO/LO in India by Foreign Entity
Applications from foreign companies (a body corporate incorporated outside India, including a firm or other association of individuals) for establishing BO/ LO/ PO in India are considered by the AD Category-I bank as per the guidelines issued by Reserve Bank of India under the provisions of Foreign Exchange Management Act, 1999.
Compliance Required:
a) Annual Activity Certificate required to be submitted to AD-1 bank
b) AAC from chartered accountants for project status are with compliance
c) Registration with Direct General of state police authority for certain countries
4. Foreign Investment
An Indian company issuing equity instruments to a person resident outside India, and where such issue is reckoned as Foreign Direct Investment under NDI Rules, 2019, shall report such issue in Form FC-GPR in the Single Master Form not later than thirty days from the date of issue of the equity instruments. Issue of ‘participating interest/ rights’ in oil fields shall be reported in Form FC-GPR.
Compliance Required:
a) Reporting of Issue of Capital Instruments along with documents & its other requirements
b) Filing of Annual Return on Foreign Liabilities and Assets (FLA Return)
c) Reporting of Transfer of equity instruments
d) Reporting of conversion of ECB into equity
e) Reporting of ESOPs and sweat equity shares
f) Reporting of ADR & GDR Issues
g) Reporting Requirements of Limited Liability Partnerships
h) Reporting of Disinvestment / transfer of capital contribution or profit share of LLP
i) Reporting of Issue or transfer of Convertible Notes – Form CN
j) Reporting of Foreign Portfolio Investment-Reporting Form LEC(FII) & if FPI considered FDI then Report under FC-GPR
k) Reporting of Investment as well as disinvestment by Foreign Venture Capital Investment (FVCI) like issue & transfer of capital instruments
l) Assistance for delays in reporting with Late Submission Fees (LSF)without attracting compounding of contraventions.
5. External Commercial Borrowing
Indian companies are allowed to access funds from abroad in the following methods:
(i) External Commercial Borrowings (ECB)
(ii) Foreign Currency Convertible Bonds (FCCBs)
(iii) Preference shares
(iv) Foreign Currency Exchangeable Bonds (FCEBs)
ECB can be accessed under two routes, viz., (i) Automatic Route outlined in paragraph and (ii) Approval Route.
Compliance Requirements:
i. Application for raising ECB under the Approval Route and for allotment of Loan Registration Number (LRN) for ECB- Form ECB
ii. Reporting of actual transactions of ECB-2 Return
iii. Form of Reporting of details of Trade Credit Form TC
iv. Statement on Guarantee/ Letter of Undertaking/ Letter of Comfort issued by AD banks in respect of Trade Credit
v. Certificate from Company Secretary / Chartered Accountants
6. Declaration of immovable property acquired by branch, office or other part of business
A person resident outside India who has established in India, a branch, office or other place of business in accordance with the 82Foreign Exchange Management (Establishment in India of a Branch Office or a Liaison Office or a Project Office or any other Place of Business) Regulations, 2016, as amended from time to time, for carrying on in India any activity, excluding a liaison office, and acquires any immovable property in India, which is necessary for or incidental to carrying on such activity, is required to file with the Reserve Bank, a declaration in the form IPI as prescribed by Reserve Bank from time to time, not later than ninety days from the date of such acquisition.
7. Overseas Direct Investment
Overseas investments (or financial commitment) in Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS) have been recognized as important avenues for promoting global business by Indian entrepreneurs.
Compliance Requirements:
i. Application for allotment of Unique Identification Number (UIN) and reporting of Remittances / Transactions
ii. Annual Performance Report (APR)
iii. Report on Disinvestment
iv. Assistance in submission of An annual return on Foreign Liabilities and Assets (FLA) to Reserve Bank of India
v. Reporting of the Overseas Investment by Venture Capital Fund (VCF) /
Alternate Investment Fund (AIF)
vi. Monthly reporting of Portfolio Investment and Overseas Investment by Mutual Fund
vii. Assisting Annual Statement shares allotted to Indian employees/ Directors under ESOP Schemes
viii. Annual Statement of shares repurchased by the issuing foreign company from Indian employees/ Directors under ESOP Schemes
ix. Reporting of Post Overseas Investment changes subsequent to allotment of UIN in Form ODI Part I in physical form.
x. Self-certification of undertaking ODI by the Resident Individual
8. Trade Finance
Trade finance represents the financial instruments and products that are used by companies to facilitate international trade and commerce. Trade finance makes it possible and easier for importers and exporters to transact business through trade. Trade finance is an umbrella term meaning it covers many financial products that banks and companies utilize to make trade transactions feasible.
Compliance Requirements:
(A) Export Compliance Required
a) Filing of EDF (Export Declaration Form)
b) Filing of Single or Bulk SOFTEX form
c) Reporting of Long-term Advance of USD 100 million & more
d) Reporting for write off of export bills through EDPMS to the Reserve Bank.
e) Assist in Application for opening foreign currency account with a bank in India or abroad by exporters
(B) Export Compliance Required
a) Half Yearly Report for furnishing details of import transactions, exceeding USD 100,000 in respect of which importers have defaulted in submission of appropriate document evidencing import within 6 months from the date of remittance in BEF form
9. Compounding
The compounding of contraventions under Foreign Exchange Management Act (FEMA), 1999 is a voluntary process by which an applicant can seek compounding of an admitted contravention of any provision of FEMA, 1999 under Section 13(1) of the FEMA, 1999.
Compliance Requirements:
a) Assist in application for Compounding of Contravention
b) Assist In preparing details of Irregularities regarding contraventions of various provisions
c) Assist in compliance to submit undertaking that applicant is not under Investigation of any agency such as DOE, CBI etc.
d) Other procedural compliances, if any.
e) Assist in collection of information & documentary evidence
