The Foreign Exchange Management Act, 1999 (hereinafter referred to as “FEMA” or “Act”) was introduced to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments in the post – liberalisation era.
FEMA is applicable to all parts of India. The Act is also applicable to all branches, offices and agencies outside India owned or controlled by a person who is a resident of India.
All transactions undertaken by a resident that do not alter his assets or liabilities outside India are current account transactions. In terms of Section 5 of the FEMA, persons are free to buy or sell foreign exchange for any current account transaction except for those transactions on which Central Government has imposed restrictions. Vide the Rules and Regulations framed under FEMA, certain compliance requirements are imposed on entities carrying out transactions involving foreign exchange. The most basic compliance requirements that would impact all entities is discussed in the table below:
S. No.
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Subject
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1.
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Foreign Investment:
Reporting of FDI for fresh issuance of shares:
An Indian company receiving investment from outside India for issue of shares or other eligible securities under the FDI Scheme, should report the details of the amount of consideration to the Regional Office concerned of the Reserve Bank through its AD Category I bank, not later than 30 days from the date of receipt in the Advance Reporting Form (ARF).
Reporting of issue of shares
Foreign Collaboration - General Permission Route (FC- GPR)
· After issue of shares or other eligible securities, the Indian company has to file Form FC-GPR not later than 30 days from the date of issue of shares[1].
· The form has to be filed through its AD Category-I bank, to the Regional Office concerned of the Reserve Bank under whose jurisdiction the registered office of the company is situated.
Annual Return on Foreign Liabilities and Assets
· All Indian companies which have received FDI and/ or made FDI abroad in the previous year(s) including the current year, should file the annual return on Foreign Liabilities and Assets (FLA).[2]
Reporting of FDI for Transfer of shares
Foreign Collaboration-Transfer of Shares (FC-TRS)
· Reporting of transfer of shares and other eligible securities 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.
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2
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Overseas Direct Investment (ODI): Overseas investments (or financial commitment) in Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS) have been recognised as important avenues for promoting global business by Indian entrepreneurs.
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Form ODI: An Indian Party and a Resident Individual making an overseas investment is required to submit form ODI.
Further, an Indian Party making overseas direct investment will have to comply with the following:
· receive share certificates or any other documentary evidence of investment in the foreign JV / WOS as an evidence of investment and submit the same to the designated AD within 6 months;
· repatriate to India, all dues receivable from the foreign JV / WOS, like dividend, royalty, technical fees etc.;
· submit to the Reserve Bank through the designated Authorized Dealer, every year, an Annual Performance Report in Part III of Form ODI in respect of each JV or WOS outside India set up or acquired by the Indian party.
· report the details of the decisions taken by a JV/WOS regarding diversification of its activities /setting up of step down subsidiaries/alteration in its share holding pattern within 30 days of the approval of those decisions by the competent authority concerned of such JV/WOS in terms of the local laws of the host country. These are also to be included in the relevant Annual Performance Report; and
· in case of disinvestment, sale proceeds of shares/securities shall be repatriated to India immediately on receipt thereof and in any case not later than 90 days from the date of sale of the shares /securities and documentary evidence to this effect shall be submitted to the Reserve Bank through the designated Authorised Dealer.
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3
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Trade
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Exports
· EDF Form: Export Declaration Form (EDF) is used to declare export of goods from Non-EDI ports.
· The exporter shall realize and repatriate the export proceeds within nine months from the date of export for all exporters including Units in Special Economic Zones (SEZs), Status Holder Exporters, Export Oriented Units (EOUs), Units in Electronic Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) & Bio-Technology Parks (BTPs) until further notice.
· For goods exported to a warehouse established outside India, the proceeds shall be realized within fifteen months from the date of shipment of goods.
Softex Form: All software exporters are required to file single as well as bulk SOFTEX form in excel format for certification.
Imports
· Importers to furnish appropriate document evidencing import of goods/ services within 6 months from the date of remittance.
· Remittances against imports should be completed not later than six months from the date of shipment, except in cases where amounts are withheld towards guarantee of performance, etc.
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Reporting on e-Biz Portal of the Government of India
Physical filing of FC-GPR, ARF and FCTRS forms is discontinued from February 8, 2016 and online filing through government’s e-Biz portal has been made mandatory. This is done with a view to promoting the ease of reporting of transactions under foreign direct investment (FDI), the filing of the ARF, Form FC-GPR and Form FCTRS has also been enabled under the e-Biz platform of the Government of India.
The design of the reporting platform enables the customer to login into the e-Biz portal, download the reporting forms, complete and then upload the same onto the portal using their digitally signed certificates.
The Authorised Dealer Banks (ADs) will be required to download the completed forms, verify the contents from the available documents, if necessary by calling for additional information from the customer and then upload the same for RBI to process and allot the Unique Identification Number (UIN).
Compounding
Where a company fails to comply with the requirements under FEMA and the Rules and Regulations made thereunder, such company can seek compounding of any admitted irregularities whether relating to Foreign Direct Investment, External Commercial Borrowings, Overseas Direct Investment and Branch Office/ Liaison Office, as applicable.
The applicant should give an undertaking that the applicant is not under investigation of any agency such as DOE, CBI, etc. in order to complete the compounding process within the time frame.
[1] Issue of bonus or rights shares to persons resident outside India directly or on amalgamation/ merger with an existing Indian company, as well as issue of shares on conversion of ECB/ royalty/ lumpsum technical know-how fee/ import of capital goods by units in SEZs has to be reported in Form FC-GPR.
[2] FLA Return is available in the RBI Website.
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