RBI FEMA/ FDI Reporting: EMF SMF Filing, FC-TRS and FLA Return

RBI FEMA/ FDI Reporting: EMF SMF Filing, FC-TRS and FLA Return . REPORTING UNDER FOREIGN EXCHANGE MANAGEMENT ACT, 1999
INTRODUCTION
The Foreign Exchange Management Act, 1999 came into force as on 01st day of June, 2000 vide Notification No. GSR(371)(E) dated 1st May 2000 contemplating the implications caused by the loopholes in the earlier Foreign Exchange regulations that led to illegal activities such as money laundering, terror financing, hawala banking etc. which had an adverse effect on the economy of India. The intent of the Act is to regulate the Foreign Exchange transactions in India resulting in growth of Indian economy. Since that time, several amendments were made to combat with the issues arising at different stages of implementation.
FORMS OF FOREIGN INVESTMENT IN INDIA: -
Investment from the Foreign can be come in the following forms: -

Subscription, purchase or sell of capital instruments of an Indian Company by person resident outside India other than citizen of Bangladesh or Pakistan or an entity incorporated in Bangladesh or Pakistan.

Purchase or sell of capital instruments of a listed Indian Company on a recognized stock exchange in India by Foreign Portfolio Investor

Purchase or sell of capital instruments of a listed Indian Company on a recognized stock exchange by Non-Resident Indian or a Overseas Citizen of India on repatriation basis

Purchase or sell of capital instruments of an Indian Company or purchase or sell units or contribute to the capital of LLP or a firm or proprietary concern by Non-Resident Indian or a Overseas Citizen of India on non- repatriation basis

Investment by Foreign Venture Capital Investor

Acquisition of shares of Indian Company through right or bonus issue.

Issue of shares under Employee Stock Options Scheme to persons resident outside India

Issue of Convertible Notes by Indian Start Up

Acquisition of shares under Merger or Amalgamation of Indian Companies by person resident outside India.

Transfer of capital instruments of an Indian Company by or to a person resident outside India.

Investment through setting up of Branch office, Liaison office, project office, wholly owned subsidiary in India.

FDI ENTRY ROUTES
PROHIBITED SECTORS

Lottery Business

Gambling and betting

Chit funds

Nidhi company

Trading in Transferable Development Rights

Real Estate Business except some specified cases

Manufacturing of Tobacco or Tobacco substitutes

Activities not open to Private Sector

Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities

SECTORAL CAPS
Below table demonstrates the allowance of FDI in different sectors as per Consolidated FDI Policy Circular of 2020 available on web link https://dpiit.gov.in, however it will be updated by Ministry from time to time as per given conditions: -

Sector/Activity

% of Equity/FDI Cap

Entry Route

Agriculture & Animal Husbandry, Plantation Sector, Mining, Petroleum & Natural Gas, Broadcasting Carriage Services, E-Commerce Activities subject to some conditions, Manufacturing & Trading, Airports (Greenfield and Existing Projects), Construction Development, Industrial Parks, Railways

100%

Automatic Route

Defence subject to Industrial License

100%

Automatic Route-Upto 74% Government Route-Beyond 74%

Private Security Agencies

74%

Automatic Route-upto 49% Government Route-Beyond 49%

Banking-Private Sector

74%

Automatic Route-upto 49% Government Route-Beyond 49% but upto 74%

Banking-Public Sector

20%

Government Route

MODE OF RECEIPTInward Remittance from abroad can be received: -

through banking channels or

out of funds held in NRE/FCNR/Escrow account, as the case may be.

TIME LIMIT FOR ISSUANCE OF CAPITAL INSTRUMENTS BY INDIAN COMPANY
An Indian Company shall issue capital instruments to the person resident outside India making such investment within 60 days from the date of receipt of consideration.
EFFECT OF NON-ISSUANCE OF CAPITAL INSTRUMENTS WITHIN TIME
Where an Indian Company fails to issue capital instruments within 60 days from the date of receipt of consideration, it shall refund the entire amount by way of outward remittance through banking channels or by credit to his NRE/FCNR accounts within 15 days from the expiry of 60 days.
FDI REPORTING:
RECEIPT OF CONSIDERATION FROM PERSON OUTSIDE INDIA
FC-GPR
A. PRIOR SCENARIO
According to prior scenario, If an Indian entity received foreign investment, it was required to submit multiple forms as mentioned below through e-biz portal: -
ADVANCE REMITTANCE FORM (ARF): -
On receipt of consideration amount from the person resident outside India against the issue of capital instruments, an Indian Company was required to report such receipt to Regional Office concerned of the Reserve Bank within 30 days from the date of receipt.
FORM FOREIGN CURRENCY-GROSS PROVISIONAL RETURN (FC-GPR)-
An Indian Company issuing capital instruments to a person resident outside India was required to report such transaction in Form FC-GPR within 30 days from the date of issue of capital to the Regional Office concerned of the Reserve Bank under whose jurisdiction the Registered office of the company operates.
 
B. PRESENT SCENARIO: -
REPORTING UNDER SINGLE MASTER FORM (SMF) ON FIRMS PLATFORM-(w.e.f. 01.09.2018)
With the objective of integrating the earlier reporting structures in regard to various types of foreign investment in India and to provide convenience to the user, RBI came up with new provision of reporting i.e. Single Master Form (SMF) which is one stop shop, 24*7 online reporting facility that subsumed the existing reporting procedure.
Registration Link https://firms.rbi.org.in
IMPLEMENTATION IN TWO PHASES
FIRST PHASE: - CREATION OF ENTITY USER & ENTITY MASTER REGISTRATION

Creation of Entity User

Visit link https://firms.rbi.org.in

Click on Registration for New Entity User.

Fill all the required details

Attach Duly signed Authority Letter on Entity’s Letter Head (Format given on the portal)

Click on submit button.

After verification of submitted details by RBI, user will receive the default password on their registered Mail-ID from RBI.

Pop up shown to the user for change of password at the time of login, user will enter the new Password and Logging on to the entity master.

Keep all the information related to Foreign Investment held as on 20.07.2018 ready in excel Form as it is to be provided in one shot.

After Login, Click on Menu Button on the top left option - Master Start Up - Entity Master - Add Button

Fill all the details of Entity and Foreign Investment held as on 20.07.2018.

Lastly Submit the information.

SECOND PHASE: - SINGLE MASTER FORM

Visit link https://firms.rbi.org.in

Click on New Business User Registration

Enter the required details

Attach duly signed Authority Letter and PAN of Business User

Submit the details.

Authorised Dealer Bank Branch verified Submitted details

Pop up will be shown displaying message for change password and after successful password changed, user will login with the changed password.

Select Single Master Form

Select “FC-GPR” from drop down menu under “Return Type”

Fill up the details relating Foreign Investment.

Click on Save and Submit Button.

TIME LIMIT FOR FILING OF FC-GPR UNDER SINGLE MASTER FORM: -
Form FC-GPR is to be filed within 30 days of issue of capital instruments.
DOCUMENTS REQUIRED FOR REPORTING UNDER SMF: -

Certified True copy of Board Resolution for issue of share certificates

Certificate of Company Secretary regarding receipt of foreign investment.

Undertaking to comply with FDI Policy

Foreign Inward Remittance Certificate of Bank

Details of Remittances received.

Declaration regarding not accepting FDI from OCB as OCBs were derecognized to invest in India w.e.f 16.09.2003

Certified True copy of Board Resolution for compliance with FDI Policy

Undertaking from Company Secretary regarding FC-GPR

KYC of Foreign Subscriber

Declaration to be filed by Authorised Representative of Indian Company

Memorandum of Association

Undertaking for condonation of delay (required in case of delay in reporting)

Letter of Debit A/c with sufficient balance.

PENALTY FOR VIOLATION
Quantifiable: - Upto Thrice the sum involved in contravention
Non-Quantifiable: - Upto Two Lakh Rupees
Contravention continuing One: - Upto Rs. 5,000/- for every day after the first day during which the contravention continues.
FORM FOREIGN CURRENCY-TRANSFER OF SHARES (FC-TRS)
When it is to be filed
Ist Case: - Transfer between the person resident outside India holding capital instruments on a repatriable basis and person resident outside India holding capital instruments on a non -repatriable basis.
IInd Case: - Transfer between the person resident outside India holding capital instruments on a repatriable basis and a person resident in India.
Exception: - Form FC-TRS is not required to be filed in case the transfer is executed among the person resident outside India holding capital instruments on non-repatriable basis and a person resident in India.
ONUS OF REPORTING: -
The onus of reporting of transfer shall be on: -

Resident transferee/transferor or

Person resident outside India holding capital instruments on non-repatriable basis

TIME LIMIT FOR FILING FORM FC-TRSWithin 60 days of transfer of capital instruments or receipt/remittance of funds whichever is earlier.
CONSEQUENCES OF DELAY IN REPORTING
Liable for payment of late submission fee, as may be decided by the Reserve Bank, in consultation with the Central Government.
ANNUAL RETURN ON FOREIGN LIABILITIES AND ASSETS (FLA)
Who is required to file- An Indian Company, LLP or other entities for instance SEBI registered AIF, Partnership Firms etc, if receiving FDI/Investment in the previous year(s) including current year, is required to submit annually Form FLA to the Reserve Bank.
REPORTING UNDER FOREIGN LIABILITIES AND ASSETS INFORMATION REPORTING (FLAIR) SYSTEM
INTENT: -
FLAIR System is deployed to enhance the security level in data submission and to improve the quality of data and it is transition from email-based reporting system to web based online reporting system which came into effect on 28.06.2019.
Web link: https://flair.rbi.org.in
WHO IS REQUIRED TO FILE FLA RETURN?
The Annual Return on Foreign Liabilities and Assets (FLA) is required to be submitted directly by all the entities who hold foreign Liabilities or Assets in their Balance Sheets.
STEPS FOR FILING RETURN TO RBI UNDER FLAIR SYSTEM: -

To access the URL https://flair.rbi.org.in

Fill Details on the portal, upload the necessary documents (i.e., Verification and Authority Letter) and submit to complete the registration by the authorised person of entity.

After successful registration, User ID and Default password will be sent to the authorized person’s mail ID

User can login on the portal using the above credentials and can file FLA Return by entering the required details pertaining to Foreign Assets and Liabilities (keep the details ready in excel Format).

WHEN FLA RETURN IS TO BE FILED: -
Entities receiving FDI and making ODI are required to report the Foreign Liabilities and Assets on or before 15th July every year under FLAIR System.
DOCUMENTS REQUIRED FOR REGISTRATION: -

Verification Letter
Authority Letter

CONSEQUENCES OF NON-FILING OF FLA RETURN
Those entities which does not file FLA Return will be considered as non-compliant with FEMA ACT, 1999 and can file the late return after the obtaining the due permission from RBI.
DON’T WANT TO INDULGE IN FEMA NON-VIOLATION?
Don’t worry, we have a team of professionals enriched in this field rendering these services from the past five years, they will guide and assist you in meeting the timelines of different forms mandatory to be filed under FEMA and will save you from any kind of litigation involved in non-violation and will keep you updated about the due dates of submission of Returns.

RBI FEMA/ FDI Reporting: EMF SMF Filing, FC-TRS and FLA Return

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