FEMA & RBI Compliances
FOREIGN EXCHANGE MANAGEMENT ACT, FOREIGN EXCHANGE MANAGE (FEMA) CONSULTANCY SERVICES
To “consolidate and revise the foreign exchange law with the purpose of easing external commerce and payments and for encouraging the orderly development and maintenance of foreign exchange market in India,” the Foreign Exchange Management Act (FEMA) was passed into law in India in 1999. The rules established under FEMA by the Directorate of Foreign Trade and Reserve Bank of India must be followed whether a Foreign Investor invests in India or an Indian Investor invests outside of India.
In the preliminary stages of business setup, J J J and Company LLP offers the following services to its clients in relation to FEMA:
The term “foreign direct investment” (FDI) refers to a direct investment into the production or business of a nation by a person or organisation from another nation, either through the acquisition of a company in the target nation or the expansion of operations of an already established company there. We plan FDI for our clients by getting to know their businesses and figuring out how to make investments in India. Additionally, FDI is limited in a number of industries to a certain extent. WE comprehend the nature of our clients’ businesses and assist in calculating the level of FDI in a certain sector.
In the preliminary stages of business setup, J J J and Company LLP offers the following services to its clients in relation to FEMA.
The term “foreign direct investment” (FDI) refers to a direct investment into the production or business of a nation by a person or organisation from another nation, either through the acquisition of a company in the target nation or the expansion of operations of an already established company there. We plan FDI for our clients by getting to know their businesses and figuring out how to make investments in India. Additionally, FDI is limited in a number of industries to a certain extent. We comprehend the nature of our clients’ businesses and assist in calculating the level of FDI in a certain sector.
We provide our client with incredibly trustworthy FEMA Regulations consulting services. The full spectrum of foreign exchange law is covered by the FEMA Regulations consultation services, which include:
Money invested in India (Overseas Investments)
Foreign businesses and residents investing in India (FDI)
NRIs, PIOs, the Foreign Investment Promotion Board, external commercial borrowings, etc. are examples of non-resident Indians.
In India, the Foreign Exchange Management Act of 1999 governs transactions involving foreign currency. Instead of controlling foreign exchange, the main focus of economic liberalisation has been to promote it. FEMA regulates all transactions involving foreign currency, and wherever relevant, parties must abide by its rules. The act’s preamble states that its purpose is to codify and update the foreign exchange laws in order to facilitate international trade and payments as well as to support the orderly growth and upkeep of the Indian foreign currency market.
We offer the following FEMA and RBI-related services:
- Compliance with the process, which includes certification from chartered accountants for the repatriation of income and assets from India.
- Submitting requests to the Reserve Bank of India for the purchase or sale of shares, debentures, and securities both directly to and from Indian residents as well as those living abroad.
- Transfer of shares from inhabitants of India to foreigners.
- Establishing a joint venture (JV).
- Forming a partnership or partnership with an NRI or someone of Indian descent.
- Other FEMA/RBI advisory services, etc.
- Issue of Statutory Certificates in accordance with RBI and FEMA regulations.
The Foreign Exchange Management Act (FEMA), which governs the flow of funds from foreign nations to India and vice versa, serves as the main legal framework. The act was established in 1999, and in addition to regulating money, it also lists the FEMA requirements that a corporate organisation must adhere to.
This law improved the efficiency of international trade, promoted foreign investment, increased financial transparency, and balance of trade payments.
The significance of a FEMA is made increasingly significant by globalisation and the rapid expansion of foreign investment, additionally, to prevent penalties for non-compliance with FEMA and to keep an eye on sectoral and investment caps.
Therefore, it is crucial for businesses to adhere to the FEMA-specified laws and regulations. Additionally, this procedure can streamline international business operations and help them manage their regulatory obligations favorably.
The following people are qualified to get services from FEMA:
Individuals – Indian non-residents (NRIs).
People who are from abroad.
High Net Worth People.
Partnership and sole-proprietorship issues.
Institutional investors from abroad.
The Reserve Bank of India is the principal regulatory body for foreign exchange in India (RBI). NRI accounts and company accounts will be subject to the Income Tax Act for tax calculation purposes. In addition to the rules mentioned above, all interactions with the company shall be governed by the Companies Act of 2013. Capital instruments shall be governed by the Securities Law (SEBI).
ECB Compliance Advisory – External commercial borrowings are those commercial loans obtained by businesses and organisations in the public sector. These loans are obtained from international businesses and institutional investors. Compared to loans taken out in India, the ECB gives a greater rate of interest.
- Acquiring real estate that is movable – Any person living outside of India is qualified to purchase real estate there. The Foreign Exchange Management Act of 1999 (FEMA) permits the purchase of real estate. The buying of real estate outside of India is likewise governed by FEMA and RBI.
- Foreign investors’ exit strategies – When their investment yield is insufficient, international investors prefer to withdraw their money. The use of such options requires that foreign investors fulfil a minimum lock-in period.
- Creation of a global business under FEMA – Outside of India, businesses can establish themselves.
- NBFC Observance of FEMA – When making an investment in an NBFC, international investors must abide by the relevant Foreign Exchange Management Act rules.
- Bank accounts for NRIs – Non-Resident Indians have the option of opening a variety of bank accounts in India, including FCNR, NRE, and NRO Accounts.
- FEMA Business and Share Valuation – The process of determining the true value of a firm or a share is known as business and share valuation. A chartered accountant or a merchant banker who is registered with SEBI does the calculating procedure using methods that are widely accepted.
- Lending to NRIs – Loans from Indian businesses or any resident Indian may be given to NRIs.
- NRI Investment Compliance with FEMA – The avenues taken for NRI investments must adhere to FEMA regulations.
- Investments Made By NRIs That Are Not Returned – Investments made by NRIs that can’t be remitted back to the investor’s native nation.
- Foreign Investment FEMA Compliance in India – This will cover both the foreign direct investment and the routes that fall under it.
- Foreign company or partnership investment in India – This outlines the numerous investment methods that international businesses may use to invest in India.
Substantial Compliances under the provisions of FEMA
Annual Return on Foreign Assets and Liabilities – An Annual Return for Foreign Liabilities and Assets must be filed by all Indian businesses that have received FDI or made ODI in any prior year, including the present year.
An Indian company is not required to file the FLA Return if it has not made any FDI or ODI investments before the end of the reporting year. However, the FLA return needs to be submitted annually if an Indian firm has any unpaid FDI or ODI.
Report on Annual Performance – An annual performance report is required from Indian parties or residents who have made Overseas Direct Investments (ODI). Additionally, on or before the 31st of December of each year, joint venture, wholly owned subsidiaries (WOS) outside of India must submit an Annual Performance Report in Form ODI Part II to the AD bank.
Outside Commercial Lending – The RBI must receive a monthly “ECB 2 Return” from borrowers detailing all ECB transactions through an AD Category-I Bank.
Single Master Form – On September 1, 2018, the Reserve Bank of India (the “RBI”) released a client manual (the “SMF Manual”) that clearly lays out the process for submitting a Single Master Form (the “SMF”), which was introduced to include the most recent detailing standards for foreign investment in India. Now, a single SMF form may be used to fill out the following forms:
- FC-GPR – The document is used when an Indian company issues capital instruments to a person residing outside of India. Within 30 days of the fund’s allocation, this form’s reporting requirements for FDI must be met.
- FC-TRS – A person in India can transfer capital assets from a foreign resident to them using this form. Within 60 days of changing capital instruments or remitting cash, whichever occurs first, FC-TRS submissions under the SMF are required.
- LLP-I – The document is utilised for foreign direct investment, which an LLP requires.
- LLP-II – The document that is used to transfer or divest capital contributions in an LLP.
- CN – The document that convertible notes are issued or transferred on. Convertible notes must be reported within 60 days of the transfer in question.
- DRR is the document used to issue and transfer depository receipts.
- ESOP – The document that is used to provide employee stock options or shares subject to sweat equity.
- DI – The document used to document downstream investments or other types of indirect foreign investments in businesses.
Advance Reporting Form – An Indian organisation that receives foreign investment for the issuance of shares or other qualified securities under the FDI Scheme must report the specifics of the amount of consideration to the Reserve Bank’s concerned Regional Office via its AD Category I bank within 30 days of the date of issue of offers.
- Formula FC-GPR – In accordance with the Foreign Exchange Management Act of 1999, the RBI is issuing this form. In exchange for receiving foreign investment, the organisation distributes its shares to outside investors. It is the organization’s duty to promptly record the specifics of such a share allocation with the RBI. The business must use the FC-GPR form (Foreign Currency-Gross Provisional Return).
- FC-TRS Form – Foreign Currency Transfer is a Form FC-TRS. When shares or convertible debentures of an Indian firm are transferred from a resident to a non-resident/non-resident Indian or vice versa for sale, this form is required to be filled out.
- ODI Form – Any Indian citizen or Indian entity interested in making an investment in the global market must complete Form ODI. Additionally, they must send the share certificate or proof of investment against investment to the designated AD within 30 days if the investment is in a joint venture or wholly owned subsidy.
While FERA views all forex-related offences as criminal charges, FEMA views them all as civil offences. As a result, it qualifies as one of FEMA’s features.
Other Essential Features And Guidelines Of FEMA Compliance Are As Follows:
- Indians residing abroad will not be covered by FEMA. There is a method used to locate the residence of an Indian citizen. The first step is to calculate how many days an individual spent in India during the preceding fiscal year (182 days or more to be a resident). Offices, branches, and agencies may all be counted as individuals for the purposes of determining Indian residence.
- FEMA grants the federal government the authority to regulate three things and impose restrictions on them. These include remittances from or to India, payments to or from India, currencies, and international security agreements.
- It identifies the areas in and around which the Reserve Bank of India (RBI) or the government is necessary for the acquisition or holding of foreign exchange.
- Foreign exchange transactions are divided into two groups by FEMA:
- Capital Account
- Current Account
Adjusting assets and liabilities both inside and outside of India, as well as those of a person who lives outside of India, is the goal of capital account transactions. Therefore, a capital account transaction is one that has changed the overseas assets and liabilities of an Indian resident in a far-off country or the other way around. A current account can be used for any other kind of transaction.
Penalties apply to people and businesses who violate the regulations, directives, and limits set forth by FEMA. The fine could be up to Rs 2 lakh, or triple, the amount involved in the breach. Extra penalties may also be applied, with the highest fine amounting to Rs. 5,000 for each additional day of infraction. It is wise of you to abide by all FEMA rules as a result.
Documents for Compliance under FEMA
Depending on the type of service required for compliance under FEMA, different documentation will be needed.
Government Approval Route – From the entities that are both the investor and the investee companies:
- The Memorandum and Articles of Association with Incorporation Certificate;
- Board Resolution;
- The preceding financial year’s audited financial statement;
- A list of all overseas collaborators of an investor entity or company, along with their names, proofs of identification, and addresses;
- The shareholding patterns of the investee company before and after the investment.
- An affidavit stating all the information given.
- A copy of the shareholders’ agreement, technology transfer agreement, trademark assignment agreement, and brand assignment agreement in the case of current ventures (as applicable).
- A copy of the downstream notice.
- A copy of any prior FIPB, SIA, or RBI approvals that are pertinent to the current request.
- Where the investment has already flowed in, a relevant Foreign Inward Remittance Certificate (FIRC).
- The High Court’s order in the event of any arrangement plan.
- Acceptance of the valuation certificate.