FEMA/ RBI Compliance Checklist for Indian Companies with FDI

FEMA/ RBI Compliance Checklist for Indian Companies with FDI. Foreign Direct Investment (FDI) in India is regulated and governed by the Reserve Bank of India (RBI) – Foreign Exchange Management Act (FEMA), 1999. The FDI policy was announced by the Government of India and RBI issued vide notification FEMA 20/2000-RB dated May 3, 2000 which contains the Regulations in this regard. FDI is a source of funding by the foreign companies or individuals to boost and establish start-up business in India. FDI is any overseas investment more than 10% by a foreigner or foreign company in an Indian start-up or venture.
The main objective of FEMA was to help facilitate external trade and payments in India. It aims to provide support and help towards foreign exchange market development and maintenance in India. FEMA sets forth the procedures, rules, regulations, compliances with respect to all foreign exchange transactions in India.
The Indian government has set up a Foreign Investment Facilitation Portal (FIFP) which replaced Foreign Investment Promotion Board (FIPB) in 2017 to review and approve foreign investment proposals in India. The FIFP is regulated by the Department of Industry and Internal Trade (DPIIT).
The FDI can be executed through two routes:
1. Automatic Route – Under the automatic route, no prior approval of the government or RBI is required.
2. Government Route – Under the Government route, prior approval from the government is needed through FIPB.
In India, foreign companies are allowed to invest in a wide range of sectors, with certain restrictions in some industries such as defense, atomic energy, and retail. The Indian government has put in place policies and regulations to encourage foreign companies to invest in India, including measures to simplify the process of setting up a business in the country, and tax and other incentives for companies that invest in certain sectors.
Certain sectors where 100% FDI is permitted under Government route: 
Food products retail trading, Printing & publishing of scientific, magazines/ journals/ periodicals, Core investment company etc.
Certain sectors where 100% FDI is permitted under Automatic route:
Agriculture,Animal Husbandry, marketplace model of e-commerce activities, Healthcare, Manufacturing, Textiles & Garments, Capital Goods etc. However, FDI is not permitted for the inventory-based model of e-commerce activities.
Certain sectors where FDI is not permitted under any routes:
Lottery business, including private lottery, online lottery, Nidhi company, Chit funds, Real estate business, Construction companies, Casinos (gambling and betting), Atomic energy, etc.
FDI Compliances:
1.Annual Return on Foreign Liabilities and Assets (FLA)
2.Annual Performance Report (APR)
3.External Commercial Borrowings (ECB)
4.Advance Reporting Form (ARF)
5.Form FC-GPR
6.Form FC-TRS
7.Form ODI
RBI various reports/ returns are required to be submitted under FEMA are consolidated in the Single Master Form (SMF)
1. Annual Return on Foreign Liabilities and Assets (FLA)
The Annual Return on Foreign Liabilities and Assets (FLA) shall be submitted directly by all the Indian Companies which has received FDI and/or made FDI abroad (i.e., overseas investment) in the previous financial year(s) including the current financial year i.e., holding the foreign Assets or Liabilities in the Balance Sheet.
Due date: The due date for filing is on or before July 15th of every year.
Explanation: for this purpose Year shall be reckoned as “April to March”.
However, in cases where the accounts are not audited before the due date of submission, the FLA return should be submitted based on unaudited accounts and once audited, the revised FLA return is to be submitted by September 30th of the same financial year.
2. Annual Performance Report (APR)
The Annual Performance Report (APR) provides information on the agency's progress achieving the goals and objectives described in the agency's Strategic Plan and Annual Performance Plan, including progress on strategic objectives, performance goals and Agency Priority Goals.
Any Indian resident or party who has made an ODI (Overseas Direct Investment) needs to submit Annual Performance Report(APR) in Form ODI Part II on the Authorised Dealer (AD) bank in respect of each Joint Venture, Wholly Owned Subsidiaries (WOS) outside India certified by the Statutory auditor of the Indian party. Self-certification of APR would suffice in case of resident individuals.
Due date: The due date for filing is on or before 31st December every year.
3. External Commercial Borrowings
External commercial borrowing (ECBs) are loans in India made by non-resident lenders in foreign currency to Indian borrowers. The borrowers shall report all ECB transactions to the Reserve Bank of India (RBI) on a monthly basis through an AD Category – I Bank in the form of ‘ECB 2 Return’ on a monthly basis.
Due date: The due date for filing is on a monthly basis.
4. Advance Reporting Form (ARF)
ARF is used by the Indian companies to report the FDI inflows of the investment received from outside India for issue of shares or other eligible securities under the FDI Scheme shall be reported with details of amount of consideration to the Regional Office of RBI through its AD Category I bank within 30 days from the date of receipt of shares in ARF.
 Due date: The due date for FDI reporting is within 30 days from receipt in ARF.
5. Form FC-GPR
Form FC-GPR stands for Foreign Currency- Gross Provisional Return. It is issued by the Reserve Bank of India (RBI) when the Company receives the foreign investment, and against such investment the Company will allot shares to a foreign investor, and it is mandatory to file such details of allotment of shares by the Company using the form FC-GPR.
Due date: The due date is within 30 days from the date of issue of shares.
6. Form FC-TRS
The full form of Form FC-TRS is Foreign Currency Transfer. It is a declaration form used by shareholder resident outside India resident Indian or non-resident to resident when they transfer their shares compulsorily and mandatorily convertible preference shares (CMCPS) / debentures /others by way of sale. The form FC-TRS in addition to the Form FC-GPR shall be submitted to its AD bank (authorised dealer bank), who shall further submit the same to the RBI office.
Due date: The due date is within 60 days from the date of receipt of the amount.
7. Form ODI
Overseas Direct Investment (ODI) refers to the investment made outside India either in a Joint Venture (JV) or Wholly Owned Subsidiary (WOS) through Automatic Route or Approval Route (Government Route). An Indian resident or party making an overseas investment shall submit form ODI, when share certificates are received or any other documentary evidence of investment in the foreign Joint Venture / WOS as evidence of investment. The same evidence or share certificate is to be submitted to the designated AD Bank.
Due date: The due date of submission is within 60 days from receipt of evidence.
FDI and Indian Nationals in Abroad:
As Indian residents living abroad may not be subject to the regulations set forth by FEMA. However, if you have any financial transactions or investments in India, you may still be subject to certain regulations under FEMA.
There is a standardized method for determining the residence of an Indian citizen. Resident in India is defined by the number of days he/she stayed in India against the underlying norm of 182 days or more technique. When using this technique, an office, branch, or agency can be considered a person.
Introduction of LSF
The Foreign Exchange Management Act, 1999 (FEMA) imposes a late submission fee (LSF) for reporting delays, which varies depending on the type of report and the duration of the delay. The specific details of the LSF can be found in FEMA regulations and circulars issued by the Reserve Bank of India.
Recently RBI introduced revised the late submission fee i.e. LSF where additional fees calculation matrix for delays reporting to uniform the imposition of LSF across functions under FEMA through its circular no. 16, dated as on September 30, 2022 (RBI Circular).
New LSF amount (i.e. INR 7,500 + [0.025% x A x n] for event-based and INR 7,500 for periodical-based filings) brings mixed implications as compared to the earlier prescribed LSF amounts.
In order to streamline and bring uniformity, the RBI Circular introduced a new uniformed LSF matrix (as below) (“New LSF”) which shall apply to all the reporting delays on or after September 30, 2022, across functions.

Sr. No

Type of Reporting delays

LSF Amount (INR)

Form ODI Part-II/ APR, FCGPR (B), FLA Returns, Form OPI, evidence of investment or any other return which does not capture flows or any other periodical reporting

7500

FC-GPR, FCTRS, Form ESOP, Form LLP(I), Form LLP(II), Form CN, Form DI, Form InVi, Form ODI-Part I, Form ODI-Part III, Form FC, Form ECB, Form ECB-2, Revised Form ECB or any other return which captures flows or returns which capture reporting of non-fund transactions or any other transactional reporting

(7500 + (0.025% x A x n))

‘n’ is the number of years of delay in submission rounded-upwards to the nearest month and expressed up to 2 decimal points.
“A” is the amount involved in the delayed reporting.
Comparison of old and revised LSF amount:
The minimum LSF payable for each delayed case irrespective of the nature of reporting, amount and time delayed has been now increased to INR 7,500, which was earlier only INR 100 and INR 5,000 for FI and ECB reported delays, respectively.
Talking about maximum LSF, in case of FI reporting delays, it was prescribed earlier up to 3 times the investment amount subject to capping of INR 10 million (where the amount involved is more than INR 10 million) and INR 1 million (where the amount involved is up to INR 10 million). For ECB related matters, it was capped at INR 100,000 per year. However, maximum LSF payable is now capped at 100% of the amount involved. In terms of percentage of fee on the amount involved, New LSF prescribes 0.025% as against 0.05% to 0.15% applicable earlier for FI reporting delays.
Features:
Foreign direct investment (FDI) is a type of investment in which a company or individual from one country establishes a business or acquires assets in another country. Some key features of FDI include:
Control: FDI typically involves the acquisition of a controlling stake in a foreign company or the establishment of a new business venture in a foreign country.
Long-term investment: FDI is generally considered a long-term investment, as opposed to portfolio investment, which is more short-term in nature.
Cross-border: FDI involves the movement of capital, resources, and management across national borders.
Economic growth: FDI can contribute to economic growth in the host country by creating jobs, increasing productivity and promoting technological transfer.
Risk: FDI is considered riskier than portfolio investment because of the greater level of involvement and commitment required.
Purpose: FDI can be made for a variety of reasons, such as to gain access to new markets, natural resources, or to take advantage of lower production costs.
Forms: FDI can take various forms such as acquisition of existing companies, setting up a new subsidiary, joint venture, strategic alliance, etc.

Foreign Direct Investment (FDI) in India is regulated and governed by the Reserve Bank of India (RBI) – Foreign Exchange Management Act (FEMA), 1999. The FDI policy was announced by the Government of India and RBI issued vide notification FEMA 20/2000-RB dated May 3, 2000 which contains the Regulations in this regard. FDI is a source of funding by the foreign companies or individuals to boost and establish start-up business in India. FDI is any overseas investment more than 10% by a foreigner or foreign company in an Indian start-up or venture.

The main objective of FEMA was to help facilitate external trade and payments in India. It aims to provide support and help towards foreign exchange market development and maintenance in India. FEMA sets forth the procedures, rules, regulations, compliances with respect to all foreign exchange transactions in India.

The Indian government has set up a Foreign Investment Facilitation Portal (FIFP) which replaced Foreign Investment Promotion Board (FIPB) in 2017 to review and approve foreign investment proposals in India. The FIFP is regulated by the Department of Industry and Internal Trade (DPIIT).

The FDI can be executed through two routes:

1. Automatic Route – Under the automatic route, no prior approval of the government or RBI is required.

2. Government Route – Under the Government route, prior approval from the government is needed through FIPB.

In India, foreign companies are allowed to invest in a wide range of sectors, with certain restrictions in some industries such as defense, atomic energy, and retail. The Indian government has put in place policies and regulations to encourage foreign companies to invest in India, including measures to simplify the process of setting up a business in the country, and tax and other incentives for companies that invest in certain sectors.

Certain sectors where 100% FDI is permitted under Government route:

Food products retail trading, Printing & publishing of scientific, magazines/ journals/ periodicals, Core investment company etc.

Certain sectors where 100% FDI is permitted under Automatic route:

Agriculture,Animal Husbandry, marketplace model of e-commerce activities, Healthcare, Manufacturing, Textiles & Garments, Capital Goods etc. However, FDI is not permitted for the inventory-based model of e-commerce activities.

Certain sectors where FDI is not permitted under any routes:

Lottery business, including private lottery, online lottery, Nidhi company, Chit funds, Real estate business, Construction companies, Casinos (gambling and betting), Atomic energy, etc.

FDI Compliances:

1.Annual Return on Foreign Liabilities and Assets (FLA)

2.Annual Performance Report (APR)

3.External Commercial Borrowings (ECB)

4.Advance Reporting Form (ARF)

5.Form FC-GPR

6.Form FC-TRS

7.Form ODI

RBI various reports/ returns are required to be submitted under FEMA are consolidated in the Single Master Form (SMF)

1. Annual Return on Foreign Liabilities and Assets (FLA)

The Annual Return on Foreign Liabilities and Assets (FLA) shall be submitted directly by all the Indian Companies which has received FDI and/or made FDI abroad (i.e., overseas investment) in the previous financial year(s) including the current financial year i.e., holding the foreign Assets or Liabilities in the Balance Sheet.

Due date: The due date for filing is on or before July 15th of every year.

Explanation: for this purpose Year shall be reckoned as “April to March”.

However, in cases where the accounts are not audited before the due date of submission, the FLA return should be submitted based on unaudited accounts and once audited, the revised FLA return is to be submitted by September 30th of the same financial year.

2. Annual Performance Report (APR)

The Annual Performance Report (APR) provides information on the agency's progress achieving the goals and objectives described in the agency's Strategic Plan and Annual Performance Plan, including progress on strategic objectives, performance goals and Agency Priority Goals.

Any Indian resident or party who has made an ODI (Overseas Direct Investment) needs to submit Annual Performance Report(APR) in Form ODI Part II on the Authorised Dealer (AD) bank in respect of each Joint Venture, Wholly Owned Subsidiaries (WOS) outside India certified by the Statutory auditor of the Indian party. Self-certification of APR would suffice in case of resident individuals.

Due date: The due date for filing is on or before 31st December every year.

3. External Commercial Borrowings

External commercial borrowing (ECBs) are loans in India made by non-resident lenders in foreign currency to Indian borrowers. The borrowers shall report all ECB transactions to the Reserve Bank of India (RBI) on a monthly basis through an AD Category – I Bank in the form of ‘ECB 2 Return’ on a monthly basis.

Due date: The due date for filing is on a monthly basis.

4. Advance Reporting Form (ARF)

ARF is used by the Indian companies to report the FDI inflows of the investment received from outside India for issue of shares or other eligible securities under the FDI Scheme shall be reported with details of amount of consideration to the Regional Office of RBI through its AD Category I bank within 30 days from the date of receipt of shares in ARF.

Due date: The due date for FDI reporting is within 30 days from receipt in ARF.

5. Form FC-GPR

Form FC-GPR stands for Foreign Currency- Gross Provisional Return. It is issued by the Reserve Bank of India (RBI) when the Company receives the foreign investment, and against such investment the Company will allot shares to a foreign investor, and it is mandatory to file such details of allotment of shares by the Company using the form FC-GPR.

Due date: The due date is within 30 days from the date of issue of shares.

6. Form FC-TRS

The full form of Form FC-TRS is Foreign Currency Transfer. It is a declaration form used by shareholder resident outside India resident Indian or non-resident to resident when they transfer their shares compulsorily and mandatorily convertible preference shares (CMCPS) / debentures /others by way of sale. The form FC-TRS in addition to the Form FC-GPR shall be submitted to its AD bank (authorised dealer bank), who shall further submit the same to the RBI office.

Due date: The due date is within 60 days from the date of receipt of the amount.

7. Form ODI

Overseas Direct Investment (ODI) refers to the investment made outside India either in a Joint Venture (JV) or Wholly Owned Subsidiary (WOS) through Automatic Route or Approval Route (Government Route). An Indian resident or party making an overseas investment shall submit form ODI, when share certificates are received or any other documentary evidence of investment in the foreign Joint Venture / WOS as evidence of investment. The same evidence or share certificate is to be submitted to the designated AD Bank.

Due date: The due date of submission is within 60 days from receipt of evidence.

FDI and Indian Nationals in Abroad:

As Indian residents living abroad may not be subject to the regulations set forth by FEMA. However, if you have any financial transactions or investments in India, you may still be subject to certain regulations under FEMA.

There is a standardized method for determining the residence of an Indian citizen. Resident in India is defined by the number of days he/she stayed in India against the underlying norm of 182 days or more technique. When using this technique, an office, branch, or agency can be considered a person.

Introduction of LSF

The Foreign Exchange Management Act, 1999 (FEMA) imposes a late submission fee (LSF) for reporting delays, which varies depending on the type of report and the duration of the delay. The specific details of the LSF can be found in FEMA regulations and circulars issued by the Reserve Bank of India.

Recently RBI introduced revised the late submission fee i.e. LSF where additional fees calculation matrix for delays reporting to uniform the imposition of LSF across functions under FEMA through its circular no. 16, dated as on September 30, 2022 (RBI Circular).

New LSF amount (i.e. INR 7,500 + [0.025% x A x n] for event-based and INR 7,500 for periodical-based filings) brings mixed implications as compared to the earlier prescribed LSF amounts.

In order to streamline and bring uniformity, the RBI Circular introduced a new uniformed LSF matrix (as below) (“New LSF”) which shall apply to all the reporting delays on or after September 30, 2022, across functions.

Sr. No

Type of Reporting delays

LSF Amount (INR)

Form ODI Part-II/ APR, FCGPR (B), FLA Returns, Form OPI, evidence of investment or any other return which does not capture flows or any other periodical reporting

7500

(7500 + (0.025% x A x n))

‘n’ is the number of years of delay in submission rounded-upwards to the nearest month and expressed up to 2 decimal points.

“A” is the amount involved in the delayed reporting.

Comparison of old and revised LSF amount:

The minimum LSF payable for each delayed case irrespective of the nature of reporting, amount and time delayed has been now increased to INR 7,500, which was earlier only INR 100 and INR 5,000 for FI and ECB reported delays, respectively.

Talking about maximum LSF, in case of FI reporting delays, it was prescribed earlier up to 3 times the investment amount subject to capping of INR 10 million (where the amount involved is more than INR 10 million) and INR 1 million (where the amount involved is up to INR 10 million). For ECB related matters, it was capped at INR 100,000 per year. However, maximum LSF payable is now capped at 100% of the amount involved. In terms of percentage of fee on the amount involved, New LSF prescribes 0.025% as against 0.05% to 0.15% applicable earlier for FI reporting delays.

Features:

Foreign direct investment (FDI) is a type of investment in which a company or individual from one country establishes a business or acquires assets in another country. Some key features of FDI include:

Control: FDI typically involves the acquisition of a controlling stake in a foreign company or the establishment of a new business venture in a foreign country.

Long-term investment: FDI is generally considered a long-term investment, as opposed to portfolio investment, which is more short-term in nature.

Cross-border: FDI involves the movement of capital, resources, and management across national borders.

Economic growth: FDI can contribute to economic growth in the host country by creating jobs, increasing productivity and promoting technological transfer.

Risk: FDI is considered riskier than portfolio investment because of the greater level of involvement and commitment required.

Purpose: FDI can be made for a variety of reasons, such as to gain access to new markets, natural resources, or to take advantage of lower production costs.

Forms: FDI can take various forms such as acquisition of existing companies, setting up a new subsidiary, joint venture, strategic alliance, etc.