Reporting and Compliance under FEMA for Entities Receiving FDI

Foreign Direct Investment (FDI) in India is governed by the Foreign Exchange Management Act (FEMA), and entities receiving FDI must adhere to strict reporting and compliance requirements. Non-compliance can result in penalties, making it crucial for businesses to be aware of their obligations. Below is a detailed breakdown of the reporting requirements under FEMA.

1. Form Foreign Currency-Gross Provisional Return (FC-GPR)

Indian companies issuing equity instruments to non-resident investors must report such transactions in Form FC-GPR within 30 days from the date of issue. This also applies to participating interest/rights in oil fields.

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

Entities that have received FDI, including Limited Liability Partnerships (LLPs) receiving capital contributions, must submit Form FLA to the Reserve Bank of India (RBI) on or before July 15 each year. The financial year for this reporting runs from April to March.

3. Form Foreign Currency-Transfer of Shares (FC-TRS)

This form is required for the transfer of equity instruments under the following conditions:

• Between a non-resident on a repatriable basis and another non-resident on a non-repatriable basis.

• Between a non-resident on a repatriable basis and a resident Indian.

• Transfers on recognized stock exchanges.

• Transfers related to participating interest/rights in oil fields.

Deadline: Form FC-TRS must be filed within 60 days from the date of transfer or receipt/remittance of funds, whichever is earlier.

4. Form Employees' Stock Option (ESOP)

If an Indian company issues stock options to non-resident employees/directors, including those of its holding, joint venture, or wholly owned subsidiary, it must file Form ESOP within 30 days from the date of issue.

5. Form Depository Receipt Return (DRR)

Domestic custodians must report the issue or transfer of depository receipts under the Depository Receipt Scheme, 2014 in Form DRR within 30 days from the closure of the issue.

6. Form LLP (I) and Form LLP (II)

• Form LLP (I): Filed within 30 days of receiving FDI in the form of capital contribution.

• Form LLP (II): Required for the transfer of capital contribution/profit shares between a resident and a non-resident within 60 days from receipt of funds.

7. LEC (FII) and LEC (NRI)

• LEC (FII): Authorized Dealer Category I banks must report Foreign Portfolio Investment (FPI) transactions.

• LEC (NRI): Reports the purchase/transfer of equity instruments by Non-Resident Indians (NRIs) or Overseas Citizens of India (OCIs).

8. Form InVI

Investment vehicles issuing units to non-residents must file Form InVI within 30 days from the date of issue.

9. Downstream Investment Reporting

• DPIIT Notification: Entities making downstream investments must notify the Secretariat for Industrial Assistance (DPIIT) within 30 days.

• Form DI: Required when downstream investment results in indirect foreign investment, to be filed within 30 days from allotment of equity instruments.

10. Form Convertible Notes (CN)

• Startups issuing Convertible Notes to non-residents must file Form CN within 30 days.

• Transfers of Convertible Notes between residents and non-residents must also be reported within 30 days.

11. Late Submission Fee (LSF) for Delayed Reporting

Entities failing to comply with these reporting requirements may be subject Late Submission Fee (LSF) determined by the RBI in consultation with the Central Government from time to time.

Final Thoughts

Ensuring timely compliance with FEMA reporting obligations is critical for businesses receiving FDI in India. Engaging with an experienced legal or financial advisor can help avoid regulatory penalties and streamline compliance processes.