As you would be aware that Foreign Exchange Transactions in India, are governed by Foreign Exchange Management Act, 1999 (FEMA, 1999) and Rules & Regulations, Notifications, Circulars and Directions (FEMA Regulations) issued thereunder by Reserve Bank of India in consultation with Government of India.
We wish to draw your
attention to FEMA 1999 which states that any person undertaking any
Foreign Exchange Transaction, is required to comply with the provisions as laid
down under the extant FEMA Regulations.
Section 13 of FEMA, 1999:, if any person
contravenes any provision of this Act, or contravenes any Rule, Regulation,
notification, direction or order issued under this Act, such person shall be
liable to prescribed penalties and fines.
Hence, we would like to reiterate and request
you to ensure that all provisions as laid down by extant FEMA guidelines are
complied with for all your Foreign Exchange transactions [Current Account
Transaction or Capital Account Transactions] including Reporting requirements
as prescribed. Failure to comply attracts Penalty and Compounding Provisions as
provided in extant FEMA Regulations.
We would like to share with you a few
illustrations on the Regulatory requirements, in relation to Capital Account
Transactions. These illustrations are not exhaustive. We advise you to go
through FEMA provisions before undertaking any cross border transactions.
Please ignore this email if you do not
transact with Citibank for Foreign Direct Investment and Overseas Direct
Investment
Foreign Direct Investments (FDI)
All FDI transactions have to comply with the
Entry Route, Sectoral cap and all other conditions of extant FDI Policy issued
by Government of India. The reporting of FDI transactions have to be completed
online through the ‘Single Master Form’ (SMF) within the timelines prescribed
following the procedure and documentation as mentioned in the SMF User Manual
released by RBI. Contravention for non-issue/ late issue of capital instruments
or non-transfer/ late transfer of capital instruments and other contraventions
of the provisions FEMA 20(R) will be proceeded against as per the procedure
laid down in sections 13 and 15 of FEMA, 1999.
[Regulatory reference : Extant FDI Policy read
with RBI Master Direction on Foreign investment into India and RBI Master
Direction on Reporting Requirements under FEMA 1999 and User Manual on SMF]
The
Reserve Bank of India has amended RBI User Manual for FDI Reporting's. We
request you to go through RBI User Manual (link as below) before filing the new
forms/ reporting's in FIMRS portal, with immediate effect. RBI has changed
standard format with respect to Company Secretary declaration, Company
declaration, Non-Resident declaration etc. based on filing applicable.
The above changes are effective from the date of issue of RBI Circular A.P.
(DIR) Circular No. 22 dated January 4, 2023.
https://firms.rbi.org.in
Key Points to Note:
1. All issue, transfer
of capital instruments by person resident outside India, Indian Entity or
Investment Vehicle or Venture Capital Fund etc receiving foreign investment
have to comply with provisions of extant Non Debt Regulation including pricing,
sector cap, downstream investment guideline, Schedules etc.
2. Delay in submission
of Reporting requirement like (FCGPR, FCTRS, LLP-I, LLP-II, Investment Vehicle
Reporting, Downstream Investment Reporting etc.) attracts late submission fee
as prescribed by RBI.
3. In case of overseas
investor being different from the remitter of funds, KYC of both the remitter
and Investor is required in the format prescribed by RBI from the overseas
remitting bank. The fact that the investor does not have a bank account is not
a valid premise for non-receipt of KYC of the investor. Wherein the remitter
and investor are different, a No objection certificate will need to be
furnished from the remitter, conveying that the remitter has no objection in
the shares being allotted to the investor. In case of FDI into LLP, the
remitter and investor cannot be different. [Ref. RBI Master Direction on
FEMA-Reporting requirement]
3. In case of Funds
received from overseas investor towards proceeds of Rights issue floated by the
investee entity, copy of the RBI letter allotting FDI Registration number for
the initial allotment to such investor, must be in place prior to receipt of
funds. . In case instruments are CCPS/CCD, valuation certificate of equity
shares is mandatory
4. In case of transfer
of Capital Instruments from Non-resident to Resident, the FDI Registration
number allotted by RBI for FDI by Existing Non-Resident Shareholder is must. In
case existing Non-Resident shareholder earlier acquired the Capital Instruments
from other Resident shareholder, then copy of the AD certified FCTRS Reporting
is a pre-requisite, without which current transaction of FCTRS (Remittance and
reporting) is not permitted. [Press note clarification issued by RBI to all AD
Banks].
5. The date of
submission of the report complete in all respects with the prescribed
documentation to the AD on SMF shall be deemed to be the date of reporting of
the transaction to RBI. In case the reporting form (whether in physical or
electronic form) is incomplete then the delay will continue till such time the
form is received complete in all respects [Ref. RBI Master Direction on
FEMA-Reporting requirement]
6. In case of conversion (CCPS/CCD to equity).
Conversion ratio should be in format as “CCD/CCPS : Equity”. Number of Equity
shares post conversion, should be disclosed in documents.
7. In case you have received any FDI, please
check whether you registered in the entity master and if not the same may be
completed on immediate basis. Further it is advised to ensure the correctness
of the data as provided in the entity master.
Overseas Direct Investments (ODI)
All ODI transactions have to comply with the
investment routes, ceiling, sectoral restrictions and all other conditions for
Overseas Direct Investments from India as prescribed under extant FEMA
Regulations.
[Regulatory Reference: Foreign Exchange
Management (Overseas Investment) Rules, Regulation 2022 and Foreign Exchange
Management (Overseas Investment) Directions, 2022]
Please refer regulation 12 of Foreign Exchange
Management (Overseas Investment) Regulations vide No. FEMA 400/2022-RB August
22, 2022 2022, "A person resident in India who has made a financial
commitment in a foreign entity in accordance with the Act or rules or
regulations made thereunder, shall not make any further financial commitment,
whether fund-based or non-fund-based, directly or indirectly, towards such
foreign entity or transfer such investment till any delay in reporting is
regularized"
We request you to pay LSF or compound the
contravention, if any for delayed reporting/submissions made under Overseas
Direct Investment guideline, before submitting any new request at bank counter
Key Points to Note:
1. All the ODI
documents are to be submitted with the AD bank prior to executing any
transaction (including SBLC/corporate guarantee).
2. Annual performance
report (APR) for each of overseas JV/WOS for every financial year (Mar-Apr) /
Calendar year (Jan-Dec) is required to be submitted ever year by December
31/December 31 of next year respectively as the case may be to the AD bank for
onward reporting to RBI, failing which no further ODI transactions are
permitted for any UIN of same Indian Party.
APR filing guideline:
•APR
in new format only-Refer page no.105 https://rbidocs.rbi.org.in/rdocs/content/pdfs/13MDR291215.pdf
• Statutory auditor certificate should be
strictly in RBI prescribed format along with UDIN number
• Not applicable points to be strike-off from
Indian Entity certificate & Statutory auditor certificate. Addition,
deletion or rephrasing of RBI format is not acceptable.
• Latest Audited Financial of JV/WOS and
Holding to be submitted along with APR and the data in APR should match with
the Financials.
• If Any Investment / Disinvestment of SDS has
happened in the period for which APR is being filed, the same needs to be
captured in Part XII of form APR – In case any change in previous reporting, a
clarification letter can be attached.
• Please use empty space at bottom of each page
for affixing Sign, Stamp & Date as this is a mandatory requirement.
• Please submit reason for delay and acceptance
of LSF application to RBI (in case delay in final
submission of reporting)
3. Post investment
changes including investment in Step down subsidiary (SDS), Capital Structure
changes etc, are required to be reported to AD bank along with APR.
- In case Indian party
acquires an Overseas subsidiary and such subsidiary in turn has multiple layers
of step down subsidiaries – all such step down subsidiaries are required to be
reported in Form ODI itself while initiating first remittance.
4. The Indian Party is
required to submit details of such disinvestment through its designated AD
category-I bank within 30 days from the date of receipt of disinvestment funds
. 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.
5. An IP/ RI which has
made direct investment abroad is under obligation to,
(i) submit share certificates or any other
document as evidence of investment in the foreign entity to the satisfaction of
the Reserve Bank within six months, or such further period as Reserve Bank may
permit, from the date of effecting remittance or the date on which the amount
to be capitalised became due to the Indian Party or the date on which the
amount due was allowed to be capitalized;
(ii) repatriate to India, all dues receivable
from the foreign entity, like dividend, royalty, technical fees etc., within 90
days of its falling due, or such further period as the Reserve Bank may permit:
6. The financial commitment by a person resident
in India in a foreign entity that has invested or invests into India at the
time of making such financial commitment or at any time thereafter, either
directly or indirectly, resulting in a structure with more than two layers of
subsidiaries is not permitted i.
7. Overseas Direct
JV/WOS (whether operating or an SPV) of an Indian Party is not permitted to set
up / make any investment into or acquire another SPV i.e. all Step Down
Subsidiaries must be operating entities only. SPV below SPV/other operating
entities is not envisaged in the ODI guidelines and the same is also not
construed as bona-fide business activities in terms of ODI Regulation.
8. The diversification
of the activities through SDS should be for Overseas Direct Investment (ODI)
and not for portfolio investment. Portfolio investment directly or indirectly
through Direct JV/ WOS / Step down subsidiary is a contravention as the definition
of the term ‘Oversea Direction Investment’ excludes Portfolio investment.].
9. In terms of ODI
Regulation, Indian party is not allowed to extend loan to JV/WOS without having
prior equity stake and control. The same provision is extended to Overseas
JV/WOS as well as transactions which are not allowed directly, cannot be
undertaken indirectly (through overseas JV/WOS) as well.
Accordingly Overseas JV/WOS of the Indian
Entities are not permitted to extend loan to other entities (whether or not
group entities or related entities), without having Equity stake. Resident
Individuals may make overseas direct investment only in equity shares/
compulsorily convertible preference shares of a JV or WOS outside India.
Resident individuals are not permitted to extend loan to overseas JV/WOS
10. Resident
Individuals are not permitted to invest into/set up a Direct JV/WOS which has /
will have Step Down Subsidiary(s).
11.
In the case of corporate guarantees, all guarantees (including performance
guarantees and Bank Guarantees / SBLC) are required to be reported to the
Reserve Bank in Form FC through designated AD, at the time of issuance of such
guarantees. Seek Prior approval from bank before issuance of corporate
guarantees
12. Indian parties/ Indian Residents are
required to submit Forms and documents to bank for reporting of investments/
financial commitments before executing the transaction
14. Each page of the Form FC should be duly
signed and stamped with date, by the RI / authorized person of the IP
External Commercial Borrowing (ECB)
Transactions
on account of External Commercial Borrowings (ECB) and Trade Credits (TC) are
governed by clause (d) of sub-section 3 of section 6 of the Foreign Exchange
Management Act, 1999 (FEMA). Various provisions in respect of these two types
of borrowings are included in the following Regulations framed under FEMA:
i. Foreign Exchange
Management (Borrowing and Lending) Regulations, 2018, notified vide Notification No. FEMA 3R/2018-RB
dated December 17, 2018, as amended from time to time; and
ii Foreign Exchange
Management (Guarantees) Regulations, 2000, notified vide Notification No. FEMA 8/2000-RB
dated May 03, 2000, as amended from time to time.
External Commercial Borrowings are commercial
loans raised by eligible resident entities from recognized non-resident
entities and should conform to parameters such as currency of borrowing,
eligible borrowers, recognized lenders, minimum maturity, permitted and
non-permitted end-uses, maximum all-in-cost ceiling, etc.
Trade Credits (TC) refer to the credits
extended by the overseas supplier, bank, financial institution and other
permitted recognized lenders for maturity, as prescribed in this framework, for
imports of capital/non-capital goods permissible under the Foreign Trade Policy
of the Government of India. Depending on the source of finance, such TCs
include suppliers’ credit and buyers’ credit from recognized lenders.
[Regulatory Reference: RBI Master Direction on
External Commercial Borrowing, FEMA 3R dated December 17, 2018, FEMA
Notification no. 8 dated May 3, 2000]
Key Points to Note:
1. ECB2 Returns are
required to be submitted to RBI by 7th of every month through
designated AD Bank.
2. Revised FORM ECB is
to be submitted within 7 days from the date
of signing loan agreement
between borrower
and lender/for any change in terms of underlying parameters of ECB.
3. Submission of both
forms beyond due date attracts Late Submission Fee - LSF
Please
refer below reporting timeline for capital account transaction which should be
adhered, failing to this, may impact on your future transactions along with
late submission fee, penalty , compounding. Reporting documents should be
submitted to bank at least 7 to 10 days prior to the due date, giving
sufficient time for AD Bank to scrutinize the documents before reporting to
RBI.
|
# |
Product |
Type |
Reporting
Timelines |
|
|
|
|
|
|
1 |
ODI |
APR (Annual Performance
Reporting) |
Annually before 31 December |
|
2 |
ODI |
Disinvestment Reporting-
Part III |
Date of receipt of
disinvestment proceed + 30 days |
|
3 |
ODI |
Reporting of SBLC/Corporate
Guarantee |
Immediately on issuance of
Guarantee (client to submit form FC to AD bank prior to issuance of
guarantee) |
|
4 |
ODI |
Post investment changes eg.
Change in capital structure, investment in SDS etc) |
Along with APR. |
|
5 |
FDI |
DI (Downstream Investment) |
Within 30 days from the date
of allotment of equity instruments |
|
6 |
FDI |
DPIIT Reporting under
downstream investment. |
Within 30 days of Downstream
Investment (even if equity instruments have not been allotted) to Secretariat
for Industrial Assistance, DPIIT |
|
7 |
ODI |
Share certificates |
Within 180 days from the
date of equity remittance |
|
8 |
ODI |
ESOP & OPI (Overseas
Portfolio Investment) |
Half yearly reporting
-Within sixty days from the end of the half-year in which such investment or
transfer is made as of September or March-end. I.e. for the period 1 April to
30 September the reporting should be done on or before 29 November and for the
period 1 October to 31 March, the reporting should be done on or before 30
May. |
|
9 |
FDI |
FCGPR –FDI /LLP-I/ESOP |
30 days from date of
issuance of capital instruments (60 days to issue capital instruments from
receipt of inward remittance) |
|
10 |
FDI |
FCTRS/LLP-II for transfer of
Shares |
within sixty days of
transfer of equity instruments or receipt/remittance of funds whichever is
earlier |
|
11 |
ECB |
ECB 2 |
Within 7 working days of
each month. |
|
12 |
LOBOPO |
AAC & Financials,
Reporting to DGP, DGIT as applicable (DGP Reporting applies only
if LOBOPO Head office is from a specific country.) |
30th September Annually
(where accounting year ending date is not 31 March, then 6 months form the
date of accounting year). |
Late Submission Fee (LSF) for delay in
Reporting’s:
|
Sr. no |
Type of Reporting delays |
LSF amount |
|
1. |
Form ODI Part-II/ APR, FCGPR , FLA Returns, Form OPI, evidence of
investment or any other return which does not capture flows or any other
periodical reporting |
7,500/- per return /form |
|
2. |
FC-GPR, FCTRS, Form ESOP, Form LLP, 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% × A × n) |
Notes:
a) “n” is the number of years of delay in
submission rounded-upwards to the nearest month and expressed up to 2 decimal
points.
b) “A” is the amount involved in the delayed
reporting.
c) LSF amount is per return. However, for any
number of Form ECB-2 returns, delayed submission for each LRN will be treated
as one instance for the fixed component. Further, ‘A’ for any ECB-2 return will
be the gross inflow or outflow (including interest and other charges),
whichever is more.
d) Maximum LSF amount will be limited to 100
per cent of ‘A’ and will be rounded upwards to the nearest hundred.
e) Where an advice has been issued for payment
of LSF and such LSF is not paid within 30 days, such advice shall be considered
as null and void and any LSF received beyond this period shall not be accepted.
If the applicant subsequently approaches for payment of LSF for the same
delayed reporting, the date of receipt of such application shall be treated as
the reference date for the purpose of calculation of “n”
In light of above, we would like to reiterate
here that the failure to comply with extant FEMA Regulations, attracts Penalty
provisions and Compounding Procedure as laid down in FEMA 1999. We request you
to ensure due adherence to extant FEMA Regulations and ensure that foreign
exchange transactions including submission of Reporting requirements are
undertaken in compliance thereof.
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