Annual Performance Report (APR) Filing under FEMA: Audited and Unaudited Financial Statements Requirements

Annual Performance Report (APR) Filing under FEMA: Audited and Unaudited Financial Statements Requirements. The Annual Performance Report (APR) is a compulsory compliance requirement under India’s foreign exchange regulatory structure governing Overseas Direct Investment (ODI). As India continues to integrate with the global economy, the Reserve Bank of India (RBI) requires robust reporting to monitor the performance, financial commitment, and operational status of Indian-owned foreign subsidiaries, joint ventures, and other overseas entities. APR filing is not merely a procedural formality; it is a legal obligation backed by the Foreign Exchange Management Act (FEMA), the Foreign Exchange Management (Overseas Investment) Rules, 2022, the Overseas Investment Regulations, 2022, and the RBI Master Direction titled Direct Investment by Residents in Overseas Entities. Together, these instruments create a structured system of annual disclosure that enables the Indian regulatory system to maintain oversight over global transactions undertaken by Indian entities and individuals.
We at CCL, will explain the complete structure of APR filing with AD bank, including the circumstances in which APR must be filed, exemptions, timelines, handling of audited and unaudited financial statements, treatment of step-down subsidiaries, and detailed reporting expectations under Form APR. Clause-based references from the RBI Rules, Regulations, and Master Direction have been incorporated to provide full legal accuracy for compliance professionals, corporates, and individual investors.
Applicability of APR Filing under FEMA
The principal legal requirement to file an Annual Performance Report arises from Rule 23 of the Foreign Exchange Management (Overseas Investment) Rules, 2022, read with Regulation 10(3) of the Overseas Investment Regulations, 2022, and Annex II of the RBI Master Direction of Direct Investment by Residents in Overseas Entities. Under Rule 23 and Regulation 10, a person resident in India who has made ODI by acquiring equity capital in a foreign entity must submit an APR every year until the investment is fully divested and the reporting obligation exists irrespective of the financial performance, profitability, operational status, or dormancy of the foreign entity.
The first and most fundamental requirement is stated explicitly in the regulatory guidance:
“A person resident in India acquiring equity capital in a foreign entity which is reckoned as ODI, shall submit an APR with respect to each foreign entity every year till the person resident in India is invested in such foreign entity.”
The ARP Filing annually allows continuous monitoring from the moment an investment is made until it is finally closed through disinvestment or liquidation. Even if the foreign entity does not conduct business or generate revenue, the APR must still be filed to substantiate the continued holding and to update the capital structure, performance indicators, and investor obligations.
Timeline for Filing APR and Special Case for Calendar Year Closing
As per Annex II, Para 2 of the Master Direction of RBI, the APR for each foreign entity must be filed by December 31 of every year, aligned with the Indian financial year (April–March), which applies even if the overseas entity follows a different accounting period, such as the calendar year (January–December) or any other jurisdiction-specific fiscal cycle.
However, a specific relaxation exists for foreign entities whose accounting year ends on December 31. In such cases, the APR must still be filed by December 31, but the filing pertains to the financials ending on that date. The regulatory extract states:
“Where the accounting year of the foreign entity ends on December 31, the APR shall be submitted by December 31 of the next year.”
Thus, the APR cycle always follows the Indian compliance schedule, but accommodates the year-end for foreign jurisdictions when the global fiscal cycle differs. RBI’s expectation is that audited or unaudited financials should be prepared in time to allow APR submission by the due date.
Circumstances Where APR Filing is Not Required
While APR is mandatory in most situations, Rule 23(4) of the OI Rules, 2022 provides for limited exemptions. APR is not required in the following situations:

APR is not required where a resident holds less than 10% equity capital without control in the foreign entity and there is no other financial commitment (such as loans, guarantees, or pledges). This is because the investment is neither strategically significant nor capable of influencing operations of the foreign entity.

APR is also not required when the foreign entity has formally entered liquidation, and the liquidation process has commenced. Once liquidation is initiated in accordance with the local jurisdiction’s laws, APR filing ceases.

Moreover, During partial-year or broken-period disinvestment, APR for the incomplete year is not required. However, all transactions from the date of the last APR up to the date of disinvestment must be reported in Form FC and other requirements of AD Bank including CA certification in APR form, ensuring RBI receives a complete record before the investment is extinguished. These exemptions are narrow, and in most practical cases, APR filing continues throughout the investment period.
Requirement of Audited Financial Statements for APR
The general rule is that the APR must be prepared on the basis of the audited financial statements of the foreign entity. Annex II of the Master Direction clearly states that audited financials are required because the APR reflects the official annual performance of the overseas entity in which Indian investors have a stake. Audited financials ensure reliability and accuracy in cross-border reporting, maintaining RBI’s confidence in the declared financial position of the foreign entity.
However, RBI also recognizes that statutory audit requirements differ across jurisdictions. Many foreign countries or Host countries do not mandate annual audits for small companies, new startups, early-stage entities, or low-turnover subsidiaries. Therefore, a carve-out is provided to ensure that APR filing does not get stalled merely because audit is not compulsory in the host country.
APR Based on Unaudited Financial Statements: RBI Provisions and Clause References
The critical compliance relaxation appears in Annex II, Para 3 of the Master Direction – Direct Investment by Residents in Overseas Entities, which states:
“Where the person resident in India does not have ‘control’ in the foreign entity and the laws of the host jurisdiction do not provide for mandatory auditing of the books of accounts, the APR may be submitted based on unaudited financial statements certified as such by the statutory auditor of the Indian entity or by a chartered accountant where the statutory audit is not applicable, including in case of resident individuals.”
This clause has the following implications:
If the Indian investor does not exercise control (i.e., ownership below 50% or lack of management influence), and the foreign jurisdiction does not mandate audit, the APR can be filed using unaudited financial statements.
The “unaudited statements” must still be certified by a professional. For corporate investors, the certification must be provided by the statutory auditor of the Indian entity. For resident individuals or entities not subject to statutory audit, the certification may be done by a chartered accountant, reflecting a pragmatic approach. RBI does not want to penalize Indian investors for differences in international auditing requirements, yet maintains a mechanism for ensuring credibility through professional certification.
Joint APR  Filing
In some  circumstances where more than one resident in India holds an ODI in the same foreign entity, Annex II, Para 4 requires that the person with the highest equity stake must file the APR. If multiple investors hold equal shares, the APR may be filed jointly. One investor may be authorized to file on behalf of others. This avoids duplication and ensures consolidated data for the foreign entity.
Mandatory Reporting of Structural and Transactional Changes
The APR must disclose any acquisition, setting up, winding up, or transfer relating to step-down subsidiaries (SDS) or changes in the shareholding pattern of the foreign entity. According to Annex II, Para 5, failure to report such changes amounts to non-submission of APR, which is a significant compliance breach.
Additionally, all APRs for previous years must have been filed before the current year’s APR is submitted. RBI does not allow filing of new remittances or approvals until earlier APRs are completed.
Capital Structure and Investment Details in APR
The capital structure information disclosed in the APR must be cumulative and must reflect the total equity stake held by all persons resident in India. This requirement is reinforced in Annex II, Para 7, ensuring that the consolidated Indian ownership is correctly recorded for regulatory monitoring.
The financial section of the APR, particularly Para VII, requires that the cumulative values reported since commencement of business cannot be lower than the current year’s values. This is to ensure consistency and accuracy in reporting long-term financial performance.
Reporting of Receipts, Preference Share Redemption, and Other Financial Activities
APR requires detailed reporting of all financial transactions, including redemption of preference shares that are not compulsorily convertible and other receipts such as license fees or interest income. These items must be included even if they are not explicitly listed in the APR form.
Retained earnings must be reported in accordance with the IMF Balance of Payments and International Investment Position Manual, as referenced in Annex II, Para IX. Negative retained earnings must be reported as zero to ensure consistency with international statistical reporting standards.
Step-Down Subsidiaries Compliance
Step-down subsidiaries must be reported level-wise, starting from the foreign entity as the parent. First-level Step-down subsidiaries are directly under the foreign entity; the second level is under the first SDS, and so on. Where the foreign entity’s core activity is not in the strategic sector, the Step-down subsidiaries must follow a structure of limited liability, as per the requirements of Schedule I of the “OI” Rules. Step-down subsidiaries involved in financial services must comply with the investment conditions specified under Para 2 of Schedule I.
Entities in which the foreign entity does not have control are not considered Step-down subsidiaries and do not need to be reported.
Additional APR Compliance Requirements
APR requires strict adherence to details such as NIC codes (1987 and 2008), date formats in DD/MM/YYYY style, and accurate foreign currency codes as per SWIFT standards. Each page of Form APR and Form FC must be signed and stamped by the person submitting the report. All amounts in foreign currency and INR must reflect actual values.
Final Thoughts from CCL
APR filing with AD Bank in India, every year is a mandatory compliance obligation for every Indian resident or entity that has made Overseas Direct Investment. APR Filing annually  ensures that RBI receives complete visibility into the performance and activities of foreign entities where Indian capital is deployed and rules governing audited and unaudited financial statements, especially the flexibility provided under Annex II, Para 3, ensure that APR filing remains practical even when global auditing standards differ from Indian norms.
However, irrespective of financial performance, audit status, or operational activity, APR filing remains compulsory until the investment is fully extinguished through disinvestment or liquidation. Failure to submit APR can restrict further remittances, delay regulatory approvals, and expose the investor to FEMA violations and compounding proceedings. Therefore, timely and accurate APR filing is indispensable for maintaining seamless overseas investment operations under India’s foreign exchange laws.

The Annual Performance Report (APR) is a compulsory compliance requirement under India’s foreign exchange regulatory structure governing Overseas Direct Investment (ODI). As India continues to integrate with the global economy, the Reserve Bank of India (RBI) requires robust reporting to monitor the performance, financial commitment, and operational status of Indian-owned foreign subsidiaries, joint ventures, and other overseas entities. APR filing is not merely a procedural formality; it is a legal obligation backed by the Foreign Exchange Management Act (FEMA), the Foreign Exchange Management (Overseas Investment) Rules, 2022, the Overseas Investment Regulations, 2022, and the RBI Master Direction titled Direct Investment by Residents in Overseas Entities. Together, these instruments create a structured system of annual disclosure that enables the Indian regulatory system to maintain oversight over global transactions undertaken by Indian entities and individuals.

We at CCL, will explain the complete structure of APR filing with AD bank, including the circumstances in which APR must be filed, exemptions, timelines, handling of audited and unaudited financial statements, treatment of step-down subsidiaries, and detailed reporting expectations under Form APR. Clause-based references from the RBI Rules, Regulations, and Master Direction have been incorporated to provide full legal accuracy for compliance professionals, corporates, and individual investors.

Applicability of APR Filing under FEMA

The principal legal requirement to file an Annual Performance Report arises from Rule 23 of the Foreign Exchange Management (Overseas Investment) Rules, 2022, read with Regulation 10(3) of the Overseas Investment Regulations, 2022, and Annex II of the RBI Master Direction of Direct Investment by Residents in Overseas Entities. Under Rule 23 and Regulation 10, a person resident in India who has made ODI by acquiring equity capital in a foreign entity must submit an APR every year until the investment is fully divested and the reporting obligation exists irrespective of the financial performance, profitability, operational status, or dormancy of the foreign entity.

The first and most fundamental requirement is stated explicitly in the regulatory guidance:

“A person resident in India acquiring equity capital in a foreign entity which is reckoned as ODI, shall submit an APR with respect to each foreign entity every year till the person resident in India is invested in such foreign entity.”

The ARP Filing annually allows continuous monitoring from the moment an investment is made until it is finally closed through disinvestment or liquidation. Even if the foreign entity does not conduct business or generate revenue, the APR must still be filed to substantiate the continued holding and to update the capital structure, performance indicators, and investor obligations.

Timeline for Filing APR and Special Case for Calendar Year Closing

As per Annex II, Para 2 of the Master Direction of RBI, the APR for each foreign entity must be filed by December 31 of every year, aligned with the Indian financial year (April–March), which applies even if the overseas entity follows a different accounting period, such as the calendar year (January–December) or any other jurisdiction-specific fiscal cycle.

However, a specific relaxation exists for foreign entities whose accounting year ends on December 31. In such cases, the APR must still be filed by December 31, but the filing pertains to the financials ending on that date. The regulatory extract states:

“Where the accounting year of the foreign entity ends on December 31, the APR shall be submitted by December 31 of the next year.”

Thus, the APR cycle always follows the Indian compliance schedule, but accommodates the year-end for foreign jurisdictions when the global fiscal cycle differs. RBI’s expectation is that audited or unaudited financials should be prepared in time to allow APR submission by the due date.

Circumstances Where APR Filing is Not Required

While APR is mandatory in most situations, Rule 23(4) of the OI Rules, 2022 provides for limited exemptions. APR is not required in the following situations:

APR is not required where a resident holds less than 10% equity capital without control in the foreign entity and there is no other financial commitment (such as loans, guarantees, or pledges). This is because the investment is neither strategically significant nor capable of influencing operations of the foreign entity.
APR is also not required when the foreign entity has formally entered liquidation, and the liquidation process has commenced. Once liquidation is initiated in accordance with the local jurisdiction’s laws, APR filing ceases.

Requirement of Audited Financial Statements for APR

The general rule is that the APR must be prepared on the basis of the audited financial statements of the foreign entity. Annex II of the Master Direction clearly states that audited financials are required because the APR reflects the official annual performance of the overseas entity in which Indian investors have a stake. Audited financials ensure reliability and accuracy in cross-border reporting, maintaining RBI’s confidence in the declared financial position of the foreign entity.

However, RBI also recognizes that statutory audit requirements differ across jurisdictions. Many foreign countries or Host countries do not mandate annual audits for small companies, new startups, early-stage entities, or low-turnover subsidiaries. Therefore, a carve-out is provided to ensure that APR filing does not get stalled merely because audit is not compulsory in the host country.

APR Based on Unaudited Financial Statements: RBI Provisions and Clause References

The critical compliance relaxation appears in Annex II, Para 3 of the Master Direction – Direct Investment by Residents in Overseas Entities, which states:

“Where the person resident in India does not have ‘control’ in the foreign entity and the laws of the host jurisdiction do not provide for mandatory auditing of the books of accounts, the APR may be submitted based on unaudited financial statements certified as such by the statutory auditor of the Indian entity or by a chartered accountant where the statutory audit is not applicable, including in case of resident individuals.”

This clause has the following implications:

If the Indian investor does not exercise control (i.e., ownership below 50% or lack of management influence), and the foreign jurisdiction does not mandate audit, the APR can be filed using unaudited financial statements.

The “unaudited statements” must still be certified by a professional. For corporate investors, the certification must be provided by the statutory auditor of the Indian entity. For resident individuals or entities not subject to statutory audit, the certification may be done by a chartered accountant, reflecting a pragmatic approach. RBI does not want to penalize Indian investors for differences in international auditing requirements, yet maintains a mechanism for ensuring credibility through professional certification.

Joint APR Filing

In some circumstances where more than one resident in India holds an ODI in the same foreign entity, Annex II, Para 4 requires that the person with the highest equity stake must file the APR. If multiple investors hold equal shares, the APR may be filed jointly. One investor may be authorized to file on behalf of others. This avoids duplication and ensures consolidated data for the foreign entity.

Mandatory Reporting of Structural and Transactional Changes

The APR must disclose any acquisition, setting up, winding up, or transfer relating to step-down subsidiaries (SDS) or changes in the shareholding pattern of the foreign entity. According to Annex II, Para 5, failure to report such changes amounts to non-submission of APR, which is a significant compliance breach.

Additionally, all APRs for previous years must have been filed before the current year’s APR is submitted. RBI does not allow filing of new remittances or approvals until earlier APRs are completed.

Capital Structure and Investment Details in APR

The capital structure information disclosed in the APR must be cumulative and must reflect the total equity stake held by all persons resident in India. This requirement is reinforced in Annex II, Para 7, ensuring that the consolidated Indian ownership is correctly recorded for regulatory monitoring.

The financial section of the APR, particularly Para VII, requires that the cumulative values reported since commencement of business cannot be lower than the current year’s values. This is to ensure consistency and accuracy in reporting long-term financial performance.

Reporting of Receipts, Preference Share Redemption, and Other Financial Activities

APR requires detailed reporting of all financial transactions, including redemption of preference shares that are not compulsorily convertible and other receipts such as license fees or interest income. These items must be included even if they are not explicitly listed in the APR form.

Retained earnings must be reported in accordance with the IMF Balance of Payments and International Investment Position Manual, as referenced in Annex II, Para IX. Negative retained earnings must be reported as zero to ensure consistency with international statistical reporting standards.

Step-Down Subsidiaries Compliance

Step-down subsidiaries must be reported level-wise, starting from the foreign entity as the parent. First-level Step-down subsidiaries are directly under the foreign entity; the second level is under the first SDS, and so on. Where the foreign entity’s core activity is not in the strategic sector, the Step-down subsidiaries must follow a structure of limited liability, as per the requirements of Schedule I of the “OI” Rules. Step-down subsidiaries involved in financial services must comply with the investment conditions specified under Para 2 of Schedule I.

Entities in which the foreign entity does not have control are not considered Step-down subsidiaries and do not need to be reported.

Additional APR Compliance Requirements

APR requires strict adherence to details such as NIC codes (1987 and 2008), date formats in DD/MM/YYYY style, and accurate foreign currency codes as per SWIFT standards. Each page of Form APR and Form FC must be signed and stamped by the person submitting the report. All amounts in foreign currency and INR must reflect actual values.

Final Thoughts from CCL

APR filing with AD Bank in India, every year is a mandatory compliance obligation for every Indian resident or entity that has made Overseas Direct Investment. APR Filing annually ensures that RBI receives complete visibility into the performance and activities of foreign entities where Indian capital is deployed and rules governing audited and unaudited financial statements, especially the flexibility provided under Annex II, Para 3, ensure that APR filing remains practical even when global auditing standards differ from Indian norms.

However, irrespective of financial performance, audit status, or operational activity, APR filing remains compulsory until the investment is fully extinguished through disinvestment or liquidation. Failure to submit APR can restrict further remittances, delay regulatory approvals, and expose the investor to FEMA violations and compounding proceedings. Therefore, timely and accurate APR filing is indispensable for maintaining seamless overseas investment operations under India’s foreign exchange laws.