Foreign investments in Indian businesses are governed by regulations set out by the Reserve Bank of India (RBI) under FEMA (Foreign Exchange Management Act). Companies that have received foreign direct investments (FDI) or transferred shares to non-residents must comply with mandatory reporting requirements, including filing of Form FC-GPR, Form FC-TRS, and the annual Foreign Liabilities and Assets (FLA) Return. Here’s an in-depth look at these filings and their procedures.
- Understanding FC-GPR
1.1 What is FC-GPR?
FC-GPR stands for Foreign Currency – Gross Provisional Return. It is required whenever an Indian company issues equity instruments, such as shares or certain types of debentures or preference shares, to a foreign investor. The form must be filed through the RBI’s FIRMS portal.
1.2 When to File
• File within 30 days of issuing shares to non-resident investors.
• Any delay can attract late submission fees (LSF) or penalties under FEMA.
1.3 Key Documents Required
• Declaration by authorized representatives of the Indian company.
• Company Secretary’s Certificate (in the prescribed format as per the RBI’s user manual).
• Valuation Certificate from a Chartered Accountant/Merchant Banker (except in certain cases like a rights issue, where a simple statement affirming price is sufficient).
• Board Resolution for allotment of shares.
• Foreign Inward Remittance Certificate (FIRC) and KYC documents.
1.4 Filing Procedure
(a) Register on the FIRMS Portal
• Create a Business User account on the FIRMS portal and validate it through your Authorized Dealer (AD) Bank.
(b) Log in & Select FC-GPR
• Once the account is activated, log in using the credentials and choose FC-GPR under Single Master Form (SMF).
(c) Enter Details
• Provide the company’s CIN, PAN, sectoral cap details, share issue information, investor details, pricing details, and upload required certificates.
(d) Submit & Track
• After review, submit the form along with supporting documents.
• On successful submission, the FIRMS portal generates a Reference Number.
- Understanding FC-TRS
2.1 What is FC-TRS?
Form FC-TRS (Foreign Currency – Transfer of Shares) is required if there is a transfer of shares or other capital instruments between a resident and a non-resident (or vice versa). This applies to scenarios like sale, purchase, or gift of shares involving foreign investors.
2.2 When to File
• Usually within 60 days of either the remittance of funds or the date of the transaction/transfer, whichever is earlier.
2.3 Key Documents & Requirements
• Valuation Report: Ensures fair and compliant transaction value.
• Buyer & Seller’s Consent: Consent letters from both parties involved in the share transfer.
• Shareholder Agreement (if any): A certified true copy to be attached.
• Board Resolution Approving the Transfer: Certified copy detailing the necessary approvals.
• Foreign Inward Remittance Certificate (FIRC) & KYC: Mandatory for non-resident transactions.
• Declaration by Non-Resident Transferor/Transferee: Confirms non-resident status and compliance with FEMA rules.
2.4 Filing Procedure
(a) Access the FIRMS Portal
• Log in using the same Business User credentials.
(b) Select FC-TRS
• Under Single Master Form, choose “Form FC-TRS” and click on “Add New Return.”
(c) Provide Transaction Details
• Input details of the transfer—type (sale or gift), parties involved, date of transfer, valuation, and mode of payment.
(d) Verify Shareholding Pattern & Submit
• Ensure the pre- and post-transaction shareholding is accurate.
• Attach the required documents and submit within the prescribed timeframe to avoid any penalty.
- Understanding FLA Return
3.1 What is FLA Return?
The Foreign Liabilities and Assets (FLA) Return is an annual filing required from any Indian entity (company, LLP, partnership, etc.) that has received FDI and/or made overseas investments (ODI) during any financial year.
3.2 Applicability
• Companies incorporated under the Companies Act.
• LLPs under the LLP Act.
• SEBI-registered Alternative Investment Funds (AIFs) and other entities with foreign investments or overseas direct investments.
3.3 Non-Applicability
You need not file FLA Return if:
• There are no outstanding foreign liabilities or assets at the end of the financial year.
• Any foreign investment in the entity has been fully divested, leaving no outstanding balance by March-end of the reporting year.
3.4 Due Date
• The FLA Return must be filed before July 15 each year.
• If audited accounts are not available by July 15, file using provisional data and later submit a revised return (if required) by September 30.
3.5 Filing Procedure
(a) Registration on RBI’s FLAIR Portal
• First-time users must register, providing an authority letter.
(b) Fill the FLA Return
• After logging in, click on “FLA Online Form” and provide all relevant financial and identification details related to foreign liabilities and assets.
(c) Sections in FLA Return
• Section I: Identification details (CIN, PAN, contact info).
• Section II: Financial details (paid-up capital, P&L, reserves, etc.).
• Section III: Foreign Liabilities (FDI in India, percentages held by non-residents).
• Section IV: Foreign Assets (outbound investments, foreign securities).
• Section V: Variation Report (auto-calculated based on previous data).
3.6 Penalties for Non-Compliance
Failure to file or incorrect filing can result in penalties under FEMA. Generally, a late submission fee may be imposed if you miss the July 15 deadline but submit before regulatory action begins. For continued non-compliance, fines can escalate significantly, even up to 300% of the amount involved.
- Penalties & Late Submission Fee (LSF)
For FC-GPR & FC-TRS:
• Late Submission Fee typically starts at INR 7,500 plus a variable percentage (0.025%) of the amount involved, depending on the length of delay.
• Further penalties under FEMA can apply for longer or more serious violations.
For FLA Return:
• A nominal late submission fee may apply if filed after July 15 but before enforcement action.
• If there is further delay or non-compliance, penalties can be much higher, including a daily penalty for each day of continued default.
- Practical Tips & Best Practices
• Plan Ahead: Maintain a checklist of deadlines—30 days for FC-GPR, 60 days for FC-TRS, and yearly by July 15 for FLA.
• Proper Documentation: Store Board Resolutions, valuation reports, remittance proofs, and KYC documents systematically to avoid last-minute delays.
• Engage Professionals: Consider consulting a Chartered Accountant, Company Secretary, or legal professionals familiar with FEMA regulations to ensure proper compliance.
• Timely Updates: Keep track of any changes in RBI guidelines to adapt your procedures accordingly.
Conclusion
Filing FC-GPR, FC-TRS, and FLA forms is essential for maintaining regulatory compliance under FEMA. Timely submissions not only protect an organization from hefty penalties but also enhance its credibility with regulatory authorities. By understanding the requirements, following the prescribed procedures, and maintaining accurate records, businesses can navigate foreign investment regulations smoothly and focus on growth and global partnerships.
Disclaimer:
This article is for informational purposes only and should not be considered legal advice. For guidance specific to your situation, please consult a professional advisor or legal expert.