Foreign Currency and its usage are governed under the Foreign Exchange Management Act, 1999 in India. Foreign investment has played a vital role in the economic progress of India since liberalization. The Government has allowed various sectors in India to raise FDI to an extent without any prior approval from the Government. In contrast, in specific sectors, FDI can be raised after approvals. India is expected to receive an annual FDI inflow of 120-160 billion USD by 2025. However, a company or individual is required to file certain returns and reports as part of FEMA compliance post-transaction.
Some standard compliances that might be needed to be followed are:
Submission of FLA Return:
The Foreign Liabilities and Asset Return is an annual return to be filed by an Indian Company. Any Indian company that holds any foreign assets or foreign liabilities on its books needs to file this return with the Reserve Bank of India. The return has to be filed by 15th July of each year and needs to submit a provisional balance sheet or final balance sheet of the company along with the return. Any domestic company that has either accepted FDI from a foreign entity or has invested in a foreign company would have to file this form.
Single Master Form:
The Single Master form has been brought into effect from 30th June 2018 and replaces many different forms required to file earlier. Forms like FC-GPR, FC-TRS, LLP-1, LLP-2, etc., are replaced by the single master form allowing companies to report various foreign transactions, including securities, transfer of securities vide a single form. The form provides for filing deadlines as per the original forms wherein FC-GPR has to be filed within 30 days as per the original forms, and similarly, respective deadlines have to be followed in the other forms.
Annual Performance Report:
An annual performance report is required to be submitted by any individual or company that has invested in a foreign company or wholly-owned subsidiary. The same has to be submitted in Form ODI Part II before 31st December of each year. The report has to be submitted to the AD bank and certified by the company’s statutory auditor that has made the foreign investment. In case the investment is caused by an individual, CA certification is not required, and the individual can certify the annual performance report.
Repatriation of Exports realization:
The export of goods or services is one of the methods through which a company supports and promotes the manufacturing of quality goods and services. Any company or individual exporting goods or services needs to realize the amount and repatriate the entire amount back within nine months after the date of export. The time limit is considered a maximum of 15 months when the export is made via a warehouse outside India. FEMA Compliance regarding the rule mentioned above has been specified in Section 9 of the FEMA Act and is formed to realize foreign exchange. The RBI may provide relaxation in specific matters for the FEMA compliance like provided during COVID-19.
The form is required to be filed by an Indian company investing in foreign companies either through a Joint Venture or by forming a wholly-owned subsidiary. The form needs to submit proof of investment either in form of share certificates or other documents to the AD Bank. The form needs to be filed within 30 days of the investment, and apart from form ODI, the company also needs to file the performance report on an annual basis.
In the era of globalization and the need for fast growth for our economy, foreign investments from investors and investment in new technology by our companies will play a huge role. RBI and FEMA have allowed for liberty to quite an extent to attract investments; however, the FEMA compliance as mentioned above ensures that all proper rules and regulations are followed to attract the assets and investments outside the country are appropriately made.