Frequently asked questions on filings to be made under Indian foreign exchange laws

Foreign investments received by Indian companies are required to be reported to India's central bank - the Reserve Bank of India ("RBI"). The RBI has prescribed forms through which these investments are to be reported. These forms are filed with the RBI via authorized dealer banks ("AD Banks").

We have created a rolling list of FAQs below, with the aim to address practical difficulties faced while filing certain forms with the RBI. It is possible that your AD Banks may follow a different practice (from the ones outlined below) while making certain filings. Please do contact us at practicemanager@btg-legal.com if you have any specific questions that we can help you with.

For reference, set out below is a description of the forms referred to in the FAQ table:

  1. Entity Master Form ("EMF") - The EMF is a form which records details of all the foreign investment received by an Indian company on a given date (please see the FAQs below). On successfully filing the EMF, the name of the Indian company is automatically included in RBI's list of companies, that have received foreign investment. Only those companies whose names appear on this list, can report details of any subsequent foreign investment received by them.
  1. Foreign Currency-Gross Provisional Return ("FC-GPR") - This form has to be filed when an Indian company issues securities to a non-resident. Form FC-GPR has to be filed with the RBI, within 30 days from the date the securities are allotted to the non-resident. The Indian company is required to file this form.
  1. Foreign Currency-Transfer of Shares ("FC-TRS") - This form has to be filed when the shares of an Indian company are transferred by a non-resident shareholder to an Indian resident or vice versa. Form FC-TRS has to be filed with the RBI, within 60 days from the date of remittance of the purchase consideration or date of transfer, whichever is earlier. The Indian resident party is required to file this form.
  1. Form Downstream Investment ("Form DI") - Investments made by an Indian company that is foreign owned and controlled ("FOCC") in another Indian company, is considered as indirect foreign investment and called 'downstream investment'. The Indian FOCC making such downstream investment is required to file Form DI with the RBI, within 30 days from the date on which it remits the investment amount.
  1. Annual Return on Foreign Liabilities and Assets ("FLA") - The FLA is a form that records the foreign assets and liabilities of the Indian company, as at the end of a financial year. Every Indian company which has received foreign direct investment is required to report its foreign assets and liabilities in this Form FLA with the RBI on or before the 15th day of July of each year.
  1. Single Master Form ("SMF") - The SMF is a consolidated form, which contains all the individual forms prescribed by the RBI, like - Form FC-GPR, Form FC-TRS. SMF was introduced by the RBI to provide a single consolidated medium for all the forms required to report foreign direct investment. The aforementioned forms are to be reported on a designated portal called "FIRMS".

FAQs

EMF

Which entities are required to file EMF?

Companies and LLPs incorporated in India, that have received foreign investment (including indirect foreign investment). Each entity is required to file the EMF only once.

  1. Entities that have received foreign investment before July 12, 2018 are required to file EMF and compulsorily disclose information in respect of all foreign investment they have received till July 12, 2018 (even if the foreign investment received till then has not been reported via Forms FC-GPR or FC-TRS, with the RBI).
  2. Entities which have received foreign investment for the first time, post July 12, 2018 - are required to file EMF providing information in respect of the first foreign investment received by such Indian company. This is an essential step, as reporting of such investment in Form FC-TRS/Form FC-GPR/Form DI will not be possible if EMF has not been filed.

Does EMF need to be updated every time there is a fresh foreign investment?

No. After filing EMF, if an Indian company receives foreign investment, such investment is not to be reported via EMF. The subsequent foreign investments are required to be reported through Form FC-GPR/Form FC-TRS/Form DI (as the case may be).

Can the EMF be rectified? If yes, how?

Yes. If details in the EMF are incorrectly recorded (e.g. the shares are reported in the column 'Foreign Portfolio Investment' instead of 'Foreign Direct Investment'), these can be rectified by detailing the changes required in a letter issued on the company's letterhead and signed by any of its directors/partners. This letter is to be sent via email to both of these email ids: fedsupport@rbi.org.in and helpfirms@rbi.org.in.

Form FC-GPR

Is EMF and FC-GPR both required to be filed in case of newly incorporated companies, despite both forms providing details of the same share issuance?

Yes, both forms are required to be filed for newly incorporated companies. To ensure accurate reporting between EMF and FC-GPR, while filing Form FC-GPR with the RBI, please ensure that the option "YES" is selected against the option "Whether the change in the shareholding pattern due to this transaction being reported has already been accounted in the pre transaction shareholding pattern".

Is a valuation certificate required to be obtained for shares issued to non-residents by way of an initial subscription through the memorandum of association?

If the value of the shares issued and subscribed to by the initial subscribers of the Indian company, is at face value, then a valuation certificate is not mandatory. Instead of a valuation certificate, a note issued by the Indian company stating that the shares are issued at face value to its initial subscribers, along with a copy of the memorandum of association of the Indian company, can be attached to Form FC-GPR. However, if the value of the shares issued and subscribed to, is more than the face value, then a valuation certificate is mandatory.

What can be done if excess funds are received from the initial subscribers due to a foreign exchange rate difference?

The Indian company can refund the excess amount before filing Form FC-GPR with the RBI. The outward remittance certificate of such refund amount has to be attached while filing the Form FC-GPR.

Is a valuation certificate required to be obtained for shares renounced by an Indian resident shareholder to a non-resident, on rights issue basis?

Yes, a valuation certificate is required to be obtained for shares offered on a rights issue basis to an Indian resident shareholder and renounced to a non-resident.

Form FC-TRS

Is Form FC-TRS required to be filed if there is a change in the nominee shareholder but no change in the beneficial owner?

No, Form FC-TRS is not required to be filed in such a case, as there is no inflow or out-flow of foreign currency.

Is Form FC-TRS required to be filed if there is a change in the beneficial owner, but no change in the nominee shareholder?

Sr. No.

Transfer between

File Form FC-TRS?

1.

Non-resident beneficial owner to non-resident beneficial owner

No

2.

Non-resident beneficial owner to Indian resident beneficial owner

Yes

3.

Indian resident beneficial owner to non-resident beneficial owner

Yes



In case of transfer of shares of an Indian company by and/or between multiple parties, can the Form FC-TRS pertaining to each such transfer be filed simultaneously?

No, only one Form FC-TRS can be filed at a time on the FIRMS portal due to the infrastructure of the portal. Once the submitted form is processed and approved by the AD Bank, another Form FC-TRS can then be filed. The Indian parties responsible for the filing should co-ordinate with the AD Bank to ensure that each Form FC-TRS is processed quickly so that all the necessary filings can be completed within the prescribed timeline (within 60 days from the date of receipt of funds or approving the share transfer, whichever is earlier).

Can the Indian company take the share transfer on record even though Form FC-TRS has not been filed with the RBI?

Yes, the Indian company can take the share transfer on record even if Form FC-TRS has not been filed with the RBI. Filing Form FC-TRS is a reporting requirement and must be filed with the RBI, within 60 days from the date of receipt of funds or approving the share transfer, whichever is earlier.

Can the Indian company take on record the transfer of shares if the previous FEMA filings in relation to such shares have not been completed?

Indian foreign exchange regulations do not restrict the Indian company from taking such transfers on record. However, in our experience, the Indian Company may face some practical difficulties while recording the transfer, particularly if the shares involved are in dematerialised form. We have seen AD Banks as well as depository participants request for copies of past FEMA filings, prior to facilitating remittance of funds or crediting the transferred shares to the demat account of the transferee. Unless the shares are credited to the transferee, they cannot be deemed transferred and recorded by the Indian Company. It is, therefore, recommended that any pending filings/ applications be submitted prior to the shares being transferred and primary evidence of approval (please see section on general questions for further information) be obtained to avoid extending the transaction closing date.

Form DI

Who is required to make this filing - the FOCC or the investee company?

This filing is required to be made by the FOCC that has made the downstream investment. The Indian company that has received the indirect investment i.e. investee entity is not required to make any forex filing.

FLA

What information should be reported in the FLA return, if the balance sheet of the Indian company is not audited before the due date?

If the Indian company's accounts are not audited before the due date of submission, i.e. July 15, then the FLA return should be submitted based on unaudited (provisional) account. Once the accounts are audited, and if there are revisions to the unaudited accounts so submitted by the Indian company, then a revised FLA return based on the audited accounts must be submitted by September 30, 2020.

Can an Indian company file Form FLA for any of the previous years?

If the Indian company has failed to file Form FLA for any year, the Indian company can make the filing (on the online FLAIR portal) by taking prior approval from RBI. To obtain this prior approval, an email may be sent to surveyfla@rbi.org.in. Please note, the erstwhile process of submitting FLA in 'XBRL file' via email is no longer accepted.

General questions

Is there any registration requirement on the portal where forms are filed? If yes, who is required to make this registration?

Yes, registration is required. A business user ID has to be created on the portal. The business user ID has to be created by the Indian resident party who has received the money/made payment of money.

Is a Know Your Customer (KYC) certificate required to be submitted in Forms FC-GPR/FC-TRS if funds are transferred by the beneficial owner on behalf of nominee shareholder of an Indian company?

If the nominee is a non-resident, then KYC of nominee is required to be submitted with the RBI, even if he is not the remitter. Depending on the AD Bank, the nominee's KYC can be obtained through SWIFT or on the letterhead of the nominee's bank.

If the nominee is an Indian resident, then KYC of the nominee is not required to be submitted with the RBI.

Are any additional documents required to be submitted while filing Forms FC-GPR/FC-TRS, for funds transferred by the beneficial owner on behalf of the nominee shareholder?

Yes, (i) a letter from the nominee shareholder; and (ii) no objection certificate from the beneficial owner, must be submitted.

Both these documents must state:

  1. that the shares registered in the nominee shareholder's name, are held on behalf of the beneficial owner;
  2. the relationship between the two is that of a beneficial owner and nominee; and
  3. therefore, the funds are transferred by the beneficial owner on behalf of the nominee shareholder.

If there is any delay in filing Forms FC-GPR and FC-TRS with the RBI, a late submission fees ("LSF") is levied on the Indian company (in case of FC-GPR) and Indian resident party (in case of FC-TRS). How can one pay this LSF and can the LSF be paid by third party on behalf of the Indian company / Indian resident party?

The LSF has to be paid by way of a demand draft, at the RBI regional office. The LSF can be paid by a third party on behalf of the Indian company (in case of FC-GPR) and Indian resident party (in case of FC-TRS).

What is the primary evidence of approval of each FEMA filing?

Form EMF: The RBI does not provide any acknowledgement/approval for filing this form. Once filed, you can log on the portal to verify that the filing has been done.

Form FC-GPR: A certificate is issued by the RBI at the time of approval of the form providing details of the allotment of securities. This is considered as primary evidence of this filing.

Form FLA: As this is an annual compliance, the RBI only issues an acknowledgement of filing this form which can be downloaded from the portal at the time of filing. If there are any errors in the filing, the RBI may intimate the Indian company on its registered email ID to have the same rectified.

Form FC-TRS/Form DI: The RBI sends an approval email to the applicant. This is considered as primary evidence of this filing.



The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.