DELAY IN REALIZATION OF EXPORT PROCEEDS - PROCEDURE FOR EXTENSION OF TIME

It is provided in Rule 9(1)(b) of the Export Regulations that the AD Bank can extend the period from nine months considering the directions issued by RBI in this regard.

In this regard, RBI has delegated the power to AD Banks and permitted AD Banks to extend the period of realization of export proceeds beyond stipulated period of realization of export proceeds, up to a period of 6 (six) months at a time subject to satisfying the conditions laid down by RBI.

Therefore, in case of delay in repatriation of export proceeds, the company should approach the AD Bank for extension of time up to 6 (six) months for realization of export proceeds.

The AD Bank will follow the guidelines laid down by RBI in this regard and, accordingly, allow extension of time.

COMPLIANCE REQUIREMENTS UNDER FEMA

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.	Subject
1.	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.
2	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.
	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.
3	Trade
	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.

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.

Can a foreign company (non - resident) company open a bank account in India?

FEM (Deposit) Regulations, 2000 (Deposit Regulations) permits a person resident outside India to open a (i) Non – Resident Ordinary Rupee (NRO) Account or (ii) Special Non – Resident Rupee Account (SNRR) for remittance in India. The Deposit Regulations specifies the eligibility conditions and the permissible credits or debits with respect to these accounts. The important conditions are mentioned below:

NRO Account

Eligibility: Any person resident outside India may open NRO account with an authorised dealer or an authorised bank for the purpose of putting through bona fide transactions in rupees not involving any violation of the provisions of the Act, rules and regulations made thereunder.

These accounts may be opened/ maintained in the form of current, savings, recurring or fixed deposit accounts. At the time of opening of the account, the account holder should furnish an undertaking to the authorised dealer/ authorised bank with whom the account is maintained that in cases of debits to the account for the purpose of investment in India and credits representing sale proceeds of investments, the account holder will ensure that such investments/ disinvestments will be in accordance with the regulations made by Reserve Bank in this regard.

The following are the permissible credits/ debits in NRO Account

(A) Credits

(i) Proceeds of remittances received in any permitted currency (i.e. a foreign currency which is fully convertible) from outside India through banking channels or any permitted currency tendered by the account-holder during his temporary visit to India or transfers from rupee accounts of non-resident banks.

(ii) Legitimate dues in India of the account holder.

(iii) Transfers from other NRO accounts.

(iv) Any amount received by the account holder in accordance with the rules or regulations made under the Act

(B) Debits

(i) All local payments in rupees including payments for investments subject to compliance with the relevant regulations made by the Reserve Bank.

(ii) Remittance outside India of current income in India of the account holder net of applicable taxes.

(iii) Transfers to other NRO accounts.

(iv) Settlement of charges on International Credit Cards issued by authorised dealer banks in India to NRIs or PIOs, subject to the limits for repatriation of balances held in NRO accounts specified in regulation 4(2) of Foreign Exchange Management (Remittance of Assets) Regulations, 2016.

Thus, the Deposit Regulation permits receipt of fully convertible foreign currency from outside India through banking channels and also permits all local payments in rupees. 

SNRR Account

The following are the conditions relevant under the Deposit Regulations for opening SNRR Account in India:

·         Eligibility: Any person resident outside India, having a business interest in India, may open a SNRR account with an authorised dealer for the purpose of putting through bona fide transactions in rupees, not involving any violation of the provisions of the Act, rules and regulations made thereunder.  

·         The SNRR account should carry the nomenclature of the specific business for which it is in operation.  

·         The debits and credits in the SNRR account should be specific/ incidental to the business proposed to be done by the account holder.

·         All the operations in the SNRR account should be in accordance with the provisions of the Act, rules and regulations made thereunder.

·         The tenure of the SNRR account should be concurrent to the tenure of the contract/ period of operation/ the business of the account holder and in no case should exceed seven years. No operations are permissible in the account after seven years from the date of opening of the account.

·         The balances in the SNRR account shall be eligible for repatriation.

The Deposit Regulations also permits a person resident outside India to open a SNRR Account when it has a business interest in India and the credits or debits in the SNRR Account should be specific/ incidental to the business proposed to be done by such entity. Accordingly, a person resident outside India is permitted to open a SNRR Account with an authorized bank in India.

From the above, it is clear that a company incorporated in another jurisdiction has the option to open a NRO Account or a SNRR Account subject to satisfying the conditions mentioned in the Deposit Regulations. It may be noted that it is the discretion of the Authorised Banks to entertain such accounts and the standards may vary from bank to bank and banks are particularly cautious while opening such accounts for non – residents, some banks have still not issued the internal guidelines for opening these accounts and refuse to open such accounts considering the regulatory aspects involved in such accounts. 

(Author can be contacted @ muthukumaran.adv@gmail.com for queries and comments)

FEMA UPDATE - ONLINE REPORTING OF FDI RELATED TRANSACTIONS

RBI has issued Circular dated 1^st February 2016 in A.P. (DIR Series) Circular No.40 with a view to promote ease of reporting of FDI-related transactions.

From 8^th February 2016, physical filing of following forms will not be permitted and only online filing under the e - biz platform will be permitted:

-       Advance Remittance Form (ARF) which is used by the companies to report the FDI inflows to RBI;

-       FCGPR Form which a company submits to RBI for reporting the issue of eligible instruments to the overseas investor against the above mentioned FDI inflow; and

-       FCTRS Form which is submitted to RBI for transfer of securities between resident and person outside India.