FEMA & RBI COMPLIANCE

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Foreign Direct Investment (FDI):

Foreign funds coming to India or foreign investment into Indian companies attract Foreign Exchange and Management Act regulations. As a regulatory body to look after FEMA, RBI imposes certain compliances. At PMRY, we offer all the required services to comply with different guidelines issued by RBI.

Foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country.

Entry routes for investments in India: -

  • Under the Foreign Direct Investments (FDI) Scheme, investments can be made in shares, mandatorily fully convertible debentures and preference shares of an Indian company by non-residents through two routes:
  • Automatic Route: Under the Automatic Route, the foreign investor or the Indian company does not require any approval from the Reserve Bank or Government of India for the investment.
  • RBI Approval Route: Under the Government Route, the foreign investor or the Indian company should obtain prior approval of the Government of India, Ministry of Finance, Foreign Investment Promotion Board (FIPB) for the investment.

The Reserve Bank has liberalized the provisions relating to investments.

  • The Reserve Bank has permitted foreign investment in almost all sectors, with a few exceptions. Foreign companies are permitted to set up 100 per cent subsidiaries in India.
  • In many sectors, no prior approval from the Government or the Reserve Bank is required for non-residents investing in India.
  • The Government allows Indian companies to issue Global Depository Receipts (GDRs) and American Depository Receipts (ADRs) to foreign investors The GDRs/ADRs issued by Indian companies to non-residents have free convertibility outside India
  • Any company or organization receiving foreign investment must report the transaction to the Reserve Bank of India in stipulated timeline.
  • Allocation of Shares against the investment should be completed within 180 days of receipt of fund.
  • The company should file the FC-GPR form within 30 days of allotment of shares.

FDI Reporting to RBI through Form FC-GPR: -

  • Within 30 days from the date of issue of shares, Form FC-GPR must be filed with the RBI along with the following documents.

Components of FC-GPR Form: -

This FC-GPR Form consists of Two Parts:

  • FC-GPR Part A
  • FC-GPR Part B

FC-GPR Part A: -

  • Part-A of Form FC-GPR has to be duly filled up and signed by the Authorized Signatory and submitted to the Authorized Dealer of the company, who will forward it to the Reserve Bank. But from August 2015, Form FC-GPR has to be filed online through E-Biz Portal (http://www.ebiz.gov.in/)
  • Along with Part -A of FC-GPR, the following documents has to be attached by the Company
  • A certificate from the Company Secretary of the company certifying that:
  • All the requirements of the Companies Act, 2013 have been complied with;
  • Terms and conditions of the Government approval, if any, have been complied with;
  • The company is eligible to issue shares under these Regulations; and
  • The company has all original certificates issued by authorized dealers in India evidencing the receipt of amount of consideration;
  • A certificate from Statutory Auditors or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the person’s resident outside India.
  • KYC issued by the Authorized Dealer.

FC-GPR Part B: -

  • Part-B of FC-GPR should be filed on an annual basis with Reserve Bank.
  • This filing has to be done in the month of June every year, for all outstanding investment by way of FDI as well as Portfolio / other investments and by way of re-invested earnings for the previous April to March period.
  • But, RBI vide RBI/2010-11/427 A.P. (DIR Series) Circular No. 45, introduced Annual return on Foreign Liabilities and Assets reporting and discontinued Part-B of Form FCGPR.
  • Such Annual return (FLA Return) should be submitted by July 15 of every year to RBI. Further, the return should be submitted by all the Indian companies which have received FDI and/or made FDI abroad (i.e. overseas investment) in the previous year(s) including the current year.

Failure to report FDI inward remittance or filing of FC-GPR: -

  • If any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorization is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable, or up to two lakh rupees where the amount is not quantifiable, and where such contravention is a continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues.

Foreign Currency- Transfer of Shares Form FC-TRS:

Declaration regarding transfer of shares by way of sale from resident to non- resident/ non-resident to resident.

Introduction:

Foreign investors can invest in Indian companies by purchasing / acquiring existing shares from Indian shareholders or from other non-resident shareholders. General permission has been granted to non-residents / NRIs for acquisition of shares by way of transfer in the following manner.

  • Transfer of shares by a Person resident outside India
  • Non Resident to Non-Resident (Sale / Gift)
  • Note: Transfer of shares from or by erstwhile OCBs would require prior approval of the Reserve Bank of India.
  • NRI to NRI (Sale / Gift)
  • Non Resident to Resident (Sale / Gift)
  • Transfer of shares from a Non Resident to Resident other than under SEBI regulations and where the FEMA pricing guidelines are not met would require the prior approval of the Reserve Bank of India.
  • Transfer of shares/convertible debentures from Resident to Person Resident outside India
  • Transfer of Shares by Resident which requires Government approval
  • Prior permission of the Reserve Bank in certain cases for acquisition / transfer of security
  • Escrow account for transfer of shares

Reporting of FDI for Transfer of shares route:

  • The actual inflows and outflows on account of such transfer of shares shall be reported by the AD branch in the R-returns in the normal course.
  • Reporting of transfer of shares between residents and non-residents and vice- versa is to be made in Form FC-TRS. The Form FC-TRS should be submitted to the AD Category – I bank, within 60 days from the date of receipt of the amount of consideration. The onus of submission of the Form FC-TRS within the given timeframe would be on the transferor / transferee, resident in India.
  • The sale consideration in respect of equity instruments purchased by a person resident outside India, remitted into India through normal banking channels, shall be subjected to a KYC check (Annex 9-ii) by the remittance receiving AD Category – I bank at the time of receipt of funds. In case, the remittance receiving AD Category – I bank is different from the AD Category - I bank handling the transfer transaction, the KYC check should be carried out by the remittance receiving bank and the KYC report be submitted by the customer to the AD Category – I bank carrying out the transaction along with the Form FC-TRS.
  • The AD bank should scrutinize the transactions and on being satisfied about the transactions should certify the form FC-TRS as being in order.
  • The transferee/his duly appointed agent should approach the investee company to record the transfer in their books along with the certificate in the Form FC-TRS from the AD branch that the remittances have been received by the transferor/payment has been made by the transferee. On receipt of the certificate from the AD, the company may record the transfer in its books.

Payment Details: -

  • There are no payments to be made to RBI for submission of FC-TRS. Applicant is required to pay a nominal e-Biz transaction fee (Rs.30/-) while submitting the application form online through e-Biz portal.

Invocation Frequency: -

  • Applicant can apply for Submission of FC-TRS at any time of the year.
  • Transfer of shares from NR to IR or vice versa is subject to the following:
  • activities of the investee company are under automatic route;
  • sectorial limits under foreign direct investment policy are not breached;
  • sale consideration is in compliance with the pricing guidelines; and
  • such transfer is not subject to Indian Takeover Code;

If a transfer does not meet any of the above requirements, a prior RBI approval will be necessary.

The following documents are to be attached:

  • Consent Letter duly signed by the seller and buyer or their duly appointed agent and in the latter case the Power of Attorney Document.
  • The shareholding pattern of the investee company after the acquisition of shares by a person resident outside India.
  • Certificate indicating fair value of shares from a Chartered Accountant.
  • Copy of Broker's note if sale is made on Stock Exchange.
  • Undertaking from the buyer to the effect that he is eligible to acquire shares / convertible debentures under FDI policy and the existing sectorial limits and Pricing Guidelines have been complied with.
  • Undertaking from the FII/sub account to the effect that the individual FII/ Sub account ceiling, as prescribed by SEBI, has not been breached.
  • Additional documents in respect of sale of shares by a person resident outside India
  • If the sellers are NRIs/OCBs, the copies of RBI approvals, if applicable, evidencing the shares held by them on repatriation/non-repatriation basis
  • No Objection/Tax Clearance Certificate from Income Tax Authority/Chartered Account.

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