FDI Compliances

Under FDI Compliances, overseas money, either by an individual or entity, is invested in an Indian organization. As indicated by the Organization for Economic Co-operation and Development (OECD), an investment of 10% or above from overseas is considered as FDI.

An investment made through a company or person in one country for business interests in another country, in the form of either setting up business operations or through obtaining business resources in the other country, for example, ownership or controlling interest in a foreign organization. There are two kinds of FDI: inward FDI and outward FDI Compliances which stands for the flow of money.

Inward FDI happens when foreign capital is invested in local resources. This results in tax breaks and low-interest rates. Outward FDI is the opposite flow of inward FDI Compliances and is also known as “direct investment abroad”.  This net inflow is also known as the “stock of foreign direct investment” and it stands for the cumulative number for a given period.

Bodies constituted for FDI Compliances

1. Foreign Investment Promotion Board (FIPB).
2. Foreign Investment Promotion Council (FIPC).
3. Foreign Investment Implementation Authority (FIIA).
4. Secretariat for Industrial Assistance (SIA).

Entities where FDI Compliances is permitted

A foreign corporation could invest in India through the FDI Compliances route in the following entities;

1. Incorporated Companies
2. Limited liability Partnership
3. partnership firm
4. FDI Compliances in small scale industries

Registration of FDI Compliances

According to the RBI notification following Indian entities, which have received foreign direct investment (FDI Compliances), should get themselves registered with Entity Master Form.

In case of a company, all kind of corporations, regardless of whether public or private, listed or unlisted, Section 8 or for-profit, government or non-government, all are required to file the Entity master form if it has received foreign investment under Foreign Direct Investment (FDI Compliances) Rules mentioned by RBI

The Reserve Bank of India (RBI) had presented two new forms (Single Master Form and Entity Master Form) with the point of improving reporting under the Foreign Exchange and Management Act, 1999 (FEMA).

RBI has presented FIRMS, an online application which gives the interface for filing of EMF and SMF. Online reporting on FIRMS must be made in two stages:

1. In the first phase, the first module viz. the interface for filing EMF was made available online.
2. In the second phase, the second module containing the SMF was made available online with effect from August 1^st, 2018.

Entity Master Form

The filing of EMF has been made available to the public for entering the required data until July 12^th, 2018. All Indian entities (corporations, LLPs and start-ups) which have foreign investment (including indirect foreign investment) are requisite to mandatorily give data in respect of all foreign investment they have received till date, regardless of whether the regulatory reporting for the same was made to RBI or not and whether the same has been recognized by RBI or not.

Any Indian entity which doesn’t follow with this pre-requisite won't be allowed to get any foreign investment (including indirect foreign investment) going forward and would be declared non-compliant with FEMA.

Penalties

All Indian entities, subsidiaries, joint venture organizations, etc. which have any form of foreign investment must ensure that they complete the EMF before July 12^th, 2018. Any non-compliance would have an unfavorable impact on foreign investors as well as they will no longer be permitted to make any further investment in that particular Indian entity.

Compliance under Master Directions issued by RBI:

1. On receipt of payment from outside India, an Advance Remittance Form (ARF) is required to be filed online (www.ebiz.gov.in) within 30 days intimating RBI about the receipt of money for such purpose along with KYC and FIRC received from recipient’s bank.

2. Within 60 days from receipt of money, shares are required to be issued to such Non-Resident.

3. FC-GPR form is required to be filed online (www.ebiz.gov.in) within 30 days from the date of allotment of shares to such Non-Resident. [ Now subsumed under SMF]

B. Compliance under Companies Act, 2013

1. Conditions of Private Placement provisions as given in Section 42 of the Companies Act, 2013 is required to be complied with.

2. Section 42 of the Companies Act, 2013 also provides a similar time limit:

> Within 60 days of receipt of money, shares are required to be allotted.

> Within 30 days from the date of allotment of share, Return of Private Placement is required to be filed with ROC in Form PAS-3.

3. Other Important Conditions under Companies Act, 2013

> If shares are not issued within 60 days, then the money is required to be refunded within 15 days otherwise 12% p.a. Interest is payable from the 61st day of allotment.

FDI Compliances for Indian Companies

• Inward Remittance- to be routed through banking channels.
• RBI would allow a Unique Identification Number (UIN)
• Indian Company has to File Form FC-GPR within 30 days from the date of issue of shares including convertible securities. [ Now through SMF form]
• Annual Return to be submitted by every Indian company which has received FDI in the previous years including the current year. The return is required to be filed by 15th July of every year.

We at eStartIndia provide meticulous assistance to the clients incorrectly filing of the FDI Compliances as per the rules.

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