Foreign Direct Investment – FEMA Compliance

Foreign Direct Investment (FDI) is one of the important sources of funds for an Indian company. Under FDI, money from foreign nationals or foreign companies is invested in Indian companies.

Foreign Direct Investment – FEMA Compliance

An investment of 10% or above from overseas is considered as FDI. The FDI Policy is regulated under the Foreign Exchange Management Act (FEMA), 1999 under the Reserve Bank of India (RBI).

There are two ways through which foreign investment could be made:

Automatic route: Under Automatic route, the non-resident investor does not require any prior approval from Govt. of India or RBI.

Approval route: Approval route, approval from the Govt authorities or Ministries is required through the Foreign Investment Facilitation Portal (FIFB). FIFB is regulated by the Dept of Industrial Policy & Promotion (DIPP).

Sectors where FDI is allowed under 100% Automatic route:

Sectors where up to 100% FDI is allowed under Approval route

Sectors where FDI is not allowed through both Automatic and Approval routes:

Get the complete list of sectors from the website of DIPP (Department of Promotion of Industry and Internal Trade).

The list of important compliance to be followed under the provisions of FEMA

Annual Return on Foreign Liabilities and Assets

Annual return for Foreign Liabilities and assets i.e. FLA Return is required to be submitted mandatorily by all the India resident companies which have received FDI or made ODI in any of the previous year, including current year.

If the Indian company does not have any outstanding investment in respect of FDI or ODI as at the end of the reporting year, the Company need not submit the FLA Return.

Similarly, if the Indian company has not received any fresh FDI or ODI in the latest year but the company has outstanding FDI and/or ODI, then that company is still required to submit the FLA Return every year by 15 July every year.

Annual Performance Report (APR)

An Indian Party, Resident Individual which has made an Overseas Direct Investment (ODI) has to submit an Annual Performance Report (APR) in Form ODI Part II to the AD bank in respect of each Joint Venture, Wholly Owned Subsidiaries (WOS) outside India on or before 31st December every year.

External Commercial Borrowings

Borrowers are required to report all ECB transactions to the RBI on a monthly basis through an AD Category – I Bank in the form of ‘ECB 2 Return’ on a monthly basis.

Single Master Form (w.e.f. 30.06.2018)

Under the head Single Master form FC-GPR, FC-TRS, LLP-I, LLP-II, CN, ESOP, DI, DRR, InVi are to be filed and submitted. The Reserve Bank of India (the “RBI”), on September 1, 2018, released a user manual (the “SMF Manual”) to clearly set out the procedure for filing a single master form (the “SMF”), which it introduced on June 7, 2018, to integrate the existing reporting norms for foreign investment in India.

Single Master Form (w.e.f. 30.06.2018)

Under the head Single Master form FC-GPR, FC-TRS, LLP-I, LLP-II, CN, ESOP, DI, DRR, InVi are to be filed and submitted. The Reserve Bank of India (the “RBI”), on September 1, 2018, released a user manual (the “SMF Manual”) to clearly set out the procedure for filing a single master form (the “SMF”), which it introduced on June 7, 2018, to integrate the existing reporting norms for foreign investment in India.

Advance Reporting Form (ARF)

An Indian company receiving investment from outside India for issue of shares or other eligible securities under the FDI Scheme has to report the details of the amount of consideration to the Regional Office concerned of the Reserve Bank through its AD Category I bank within 30 days from the date of issue of shares.

Form FC-GPR

It is a form issued by RBI under Foreign Exchange Management Act, 1999. When the company receives the foreign investment and against such investment the company allots shares to such foreign investor then it is the duty of the company to file details of such allotment of shares with The RBI within 30 days and for that company has to use the form FC-GPR (Foreign Currency- Gross Provisional Return) for submitting details with RBI. (Read More about Form FC-GPR)

Form FC-TRS

The literal full form of Form FC-TRS is Foreign Currency Transfer. It is a form used by shareholder resident outside India resident Indian or vice versa when they transfer their shares. The form FC-TRS along with the Form FC-GPR will be submitted to its authorised dealer bank, who will submit the same to the RBI. (Read More about Form FC-TRS)

Form ODI

An Indian Party and a Resident Individual making an overseas investment is required to submit form ODI. When they 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 30 days

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Frequently Asked Questions

Q: What is the eligibility of designated partners/partners in an LLP?

Ans: Any individual, or even a company or an LLP, can become a partner. However, only an individual can become a ‘designated partner’ in an LLP.

Q: What is an LLP agreement?

Ans: An LLP agreement is made between the partners and the LLP regarding the relationship between the individual partners in the LLP. An LLP agreement usually consists of management policies, the inclusion of new partners, policy-making strategies, and so on.

Q: What kind of start-ups commonly register LLPs?

Ans: Typically, only start-ups that will not be looking for venture capital funding register LLPs. This is because venture capitalists only invest in private and public limited companies.

Q: I am an NRI. Can I start an LLP business in India?

Ans: Yes, non-resident Indians and foreign nationals who are willing to enter into an LLP partnership can do so, provided they submit the necessary documents after getting them notarized by the concerned authorities. Although, at least one of the designated partners in an LLP should be an Indian national.

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