FDI REPORTING REQUIREMENTS SIMPLIFIED BY RBI

FDI REPORTING REQUIREMENTS SIMPLIFIED BY RBI

Dipak Rao & Gunjan Gupta


Updated on 27/04/2020

The Reserve Bank of India (RBI) vide A.P (DIR Series) Circular No. 30 dated June 07, 2018 (FDI Circular) simplified the foreign investment reporting by the Indian entities, by consolidating 9 different forms viz., FCGPR Form, FCTRS Form, LLP (I) Form,  LLP (II) Form, CN Form, DRR Form, ESOP Form, DI Form and INVI Form, in one master form, namely Single Master Form (SMF), through which the Indian entities can do foreign investment reporting, without using the digital signature certificates of the authorised signatories. With the introduction of the SMF, the RBI also dispensed with the requirement of filing the advance reporting form by the Indian companies.

 

The RBI via FDI Circular also introduced an interface, namely Entity Master Form (EMF), to the Indian entities, to input the details of the total foreign investment received by them as on the date of creation of the EMF account.  

 

Pursuant to the introduction of the aforesaid FDI reporting norms, the Indian entities are now required to create an EMF account and SMF account on the Foreign Investment Reporting and Management System (FIRMS) portal by following the procedure mentioned therein, which can be accessed at the following link – https://firms.rbi.org.in/firms/faces/pages/login.xhtml.

 

It is important to note that the creation of EMF account is the first step and it is an entity specific account i.e. the Indian entity can create only one EMF account on FIRMS portal. After the EMF account is created, the Indian entity can proceed to create the SMF account on FIRMS Portal, which is an Authorised Dealer Bank (AD Bank) specific account. An Indian entity can create multiple SMF accounts to report the FDI transactions where the said transactions are carried out through different AD Banks.

 

The AD Bank with whom the application is filed has a maximum time limit of 5 working days to approve or reject the application or forward the same to the RBI (applicable only in exceptional cases). With the implementation of EMF and SMF, the provision of seeking clarification/resubmission of the application has been done away with. The Indian entity receives the outcome of the application through an e-mail registered on the FIRMS portal. In case of rejection of the application, the reasons for rejection are mentioned in the e-mail, which can be subsequently \discussed and ratified by the Indian entity with its AD Bank, prior to the submission of the fresh application for its timely closure.

 

The Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 (Regulations) issued by the RBI on October 17, 2019 provides for the following timelines within which the Indian entities are required to complete the FDI reporting on FIRMS Portal:

 

(a)  FCGPR (Foreign Currency-Gross Provisional Return) Form – An Indian company issuing equity instruments to a person resident outside India should file FCGPR Form, within 30 days from the date of issuance of the equity instruments.

 

(b)  FCTRS (Form Foreign Currency-Transfer of Shares) Form – The resident transferor/transferee or the person resident outside India holding equity instruments on a non-repatriable basis, as the case may be, should file FCTRS Form, within 60 days of transfer of equity instruments or receipt/remittance of funds, whichever is earlier.

 

(c)  LLP(I) Form – A limited liability partnership (LLP) receiving the amount of consideration for the capital contribution should file LLP(I) Form, within 30 days from the date of receipt of the amount of consideration.

 

(d)  LLP(II) Form – The resident transferor/transferee, as the case may be, should file LLP(II) Form, within 60 days of the receipt of the amount of consideration, for transfer of capital contribution, from a resident to a non-resident (or vice-versa).

 

(e)  CN Form – The Indian start-up company issuing convertible notes to a person resident outside India should file CN Form, within 30 days from the date of issuance of the convertible notes. Further, the resident transferor/transferee should file CN Form, within 30 days of the transfer of the convertible notes issued by an Indian start-up company, from a resident to a non-resident (or vice-versa).

 

(f)  DRR Form – The domestic custodian issuing/transferring the depository receipts, in accordance with the Depository Receipt Scheme, 2014 should report in DRR Form, within 30 days of issuance/transfer of depository receipts.

 

(g)  ESOP Form – An Indian company issuing employees’ stock option to persons resident outside India who are its employees/directors or employees/directors of its holding company/joint venture/wholly owned overseas subsidiary/subsidiaries should file ESOP Form, within 30 days from the date of issuance of employees’ stock option.

 

(h)  DI Form – An Indian entity or an investment Vehicle making downstream investment in another Indian entity which is considered as indirect foreign investment for the investee Indian entity should file DI Form, within 30 days from the date of allotment of equity instruments.

 

(i)  INVI Form – An Investment vehicle which has issued its units to a person resident outside India should file INVI Form, within 30 days from the date of issuance of units.

The said Regulations also provides that any delay in reporting would attract late submission fees (LSF), which may be decided by the RBI, in consultation with the Central Government. In cases, where the RBI imposes LSF, the application would deem to be approved on payment of the LSF and receipt of the acknowledgment in respect thereof, from the RBI.

 

Processing of the applications in consolidated SMF form in given timeframe has eased the reporting of FDI transactions. However, there is a practical limitation associated with the filing of the application in SMF account that only one application can be processed at given point of time across all the SMF account(s) of an Indian entity and unless the said application is approved/rejected, the Indian entity cannot file another application on any of its SMF account(s).

ANNUAL RETURN ON FOREIGN LIABILITIES AND ASSETS (FLA) – APPLICABLE ON LLPS

ANNUAL RETURN ON FOREIGN LIABILITIES AND ASSETS (FLA) – APPLICABLE ON LLPS

Dipak Rao & Gunjan Gupta


6/07/2018 [socialsharesinghania]

The Reserve Bank of India (RBI) vide Notification No. FEMA 20(R)/2017-RB dated November 07, 2017 replaced Notification No. FEMA 20/2000-RB and Notification No. FEMA 24/2000-RB both dated May 3, 2000 by the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 (Regulations 2017).

Regulations 2017, inter-alia, provides that the Limited Liability Partnership (LLP) which has received investment by way of capital contribution from foreign investors in the previous financial year(s) including the current financial year, should submit Excel based FLA return with the RBI on or before the 15th day of July of each year.

Although Regulations 2017 casts a mandatory obligation on the LLP(s) having foreign investment to file the Excel based FLA return with the RBI within the prescribed timeline, the format of the Excel based FLA return relates only to a company. No amendment has been carried out in the format of the Excel based FLA return to suit the LLP requirements, which creates the misperception that the same is not applicable to LLP(s) at all.

The first page of Excel based FLA return requires the corporate identification number (CIN) to be filled up, which contains 21 alphanumeric digits. Whereas limited liability partnership identification number (LLP-IN) contains only 7 alphanumeric digits. Therefore, to enable LLP(s) to file the Excel based FLA return they are required to obtain a dummy CIN by sending a request e-mail to surveyfla@rbi.org.in (RBI helpdesk – 022-26578662/8214). After the dummy CIN is allotted, the same will be used for future filings until the format of the Excel based FLA return is amended to meet the LLP requirements.

It is pertinent to note that non-submission or delay in submission of Excel based FLA return by LLP(s) is a compoundable offence in terms of the Master Direction on Compounding of Contraventions under the FEMA, 1999 issued by the RBI on January 01, 2016.

ECB REVISED FRAMEWORK 2015 – SIMPLIFICATION FOR GENERAL CORPORATE PURPOSES

ECB REVISED FRAMEWORK 2015 – SIMPLIFICATION FOR GENERAL CORPORATE PURPOSES

Dipak Rao & Gunjan Gupta


22/08/2017 [socialsharesinghania]

Introduction

External Commercial Borrowings, more commonly referred to as ECB, includes bank loans, buyers’ credit, suppliers’ credit, foreign currency convertible bonds, financial lease, foreign currency exchangeable bonds and securitized instruments which can be availed by specified Indian borrowers from recognized foreign lenders for the permitted end-uses under the regulations notified by the Reserve Bank of India (‘RBI’) from time to time. Any borrowing from a foreign lender, whose maturity period extends beyond three years, is eligible to qualify as an ECB. Due to the prolonged duration of such borrowings, they qualify as long term debts and thus, can be termed to be capital account transactions as defined under the Foreign Exchange Management Act, 1999.[1]

The recent trend of investment in Indian companies has been enthralling for startups and innovative companies. In order to promote investment into businesses, Securities Exchange Board of India (‘SEBI’) and the RBI have been striving to liberalize financing. While the SEBI has floated concept papers on crowdfunding and has introduced an institutional trading platform for startups and the small and medium-sized enterprises, the RBI has moved to improve the foreign investment prospects in Indian companies by issuing various circulars on this subject matter, from time to time.

ECB can be obtained either through automatic or approval route, depending on the restrictions which may be in force at the time of filing the application. For automatic route, the cases are examined by the concerned Authorised Dealer Banks (‘AD Banks’), whereas under the approval route, the prospective borrowers are required to send their requests to the RBI through their concerned AD Banks.

The RBI in 2013[2] for the first time permitted the eligible borrowers to avail ECB from their direct foreign equity holders, for general corporate purposes, subject to certain conditions specified therein, under the approval route.

In 2014[3], the RBI further permitted the eligible borrowers (viz. the companies belonging to manufacturing, infrastructure, hotels, hospitals and software sectors) to obtain ECB from direct equity holders for general corporate purposes (including working capital requirement), under the automatic route.

Recently, a revised framework (‘Revised Framework’) of ECB policy was floated by the RBI in November, 2015[4] for further simplification of the procedure for availing ECB, inter-alia, for general corporate purposes. The said Revised Framework has been enforced with effect from December 02, 2015.[5] This article will elaborate on the allowed ECBs for general corporate purposes, in view of the reformative outlook of the RBI.

ECB – Former Regime

Under the former regime, eligible borrowers were only permitted to avail ECB for general corporate purposes from foreign direct equity holders, under approval route/automatic route, subject to the specified conditions.

Following conditions existed under both, automatic route as well as approval route.

a) Eligible borrowers were permitted to avail ECB from the foreign direct equity holders, up to USD 5 million or its equivalent, if the foreign direct equity holders were holding minimum 25% equity holding in the borrowing entity.

b) Minimum average maturity period for availing ECB for general corporate purposes was 7 years. Also, no prepayment was allowed before the expiry of the said 7 years of minimum average maturity period.

The conditions which distinguished availing ECB under automatic route/approval route were as under:

a) In case of automatic route, the eligible borrowers were permitted to avail ECB from the foreign direct equity holders beyond USD 5 million or its equivalent, if (i) the foreign direct equity holders were holding minimum 25% equity holding in the borrowing entity and (ii) ECB liability: equity ratio was not more than 4:1 i.e. ECB liability of the borrower (including all outstanding ECBs and the proposed one) towards the foreign equity holder was not more than 4 times of the equity contributed by the foreign direct equity holder. Whereas, in case of approval route, the eligible borrowers were permitted to avail ECB from the foreign direct equity holders beyond USD 5 million or its equivalent, if (i) the foreign direct equity holders were holding minimum 25% equity holding in the borrowing entity and (ii) ECB liability: equity ratio was not more than 7:1 i.e. ECB liability of the borrower (including all outstanding ECBs and the proposed one) towards the foreign equity holder was not more than 7 times of the equity contributed by the foreign direct equity holder.

In case of automatic route, the borrower was entitled to a maximum of USD 200 million ECB in a financial year in hotels, hospitals and software sectors, and a maximum of USD 750 million in manufacturing and infrastructure sector in a financial year. Whereas, in case of approval route, the borrower was entitled ECB beyond USD 200 million in a financial year in hotels, hospitals and software sectors, and ECB beyond USD 750 million in a financial year the manufacturing and infrastructure sectors.

ECB – New Regime under the Revised Framework

Revised Framework segregates ECB broadly into following three tracks[6]:

Track I Medium term foreign currency denominated ECB with minimum average maturity period of 3/5 years
Track II Long term foreign currency denominated ECB with minimum average maturity period of 10 years
Track III Indian Rupee denominated ECB with minimum average maturity period of 3/5 years

The Revised Framework has bifurcated the permitted sectors of the older regime where ECB was permitted for general corporate purposes, under all 3 Tracks (for manufacturing and software development sector) and under Track II & Track III (infrastructure sector[7] which inter-alia includes hospitals and hotels) under the new regime. Meaning thereby, infrastructure sector[8] which inter-alia includes hospitals and hotels can no longer avail Medium term foreign currency denominated ECB under the new regime.

Although, the Revised Framework clearly states that Track I eligible borrowers viz. companies in manufacturing and software development sector can avail medium term foreign currency denominated ECB for general corporate purposes (including working capital) from foreign equity holders with a minimum average maturity period of 5 years, it appears that all Track II eligible borrowers (which also includes Track I eligible borrowers) can avail long term foreign currency denominated ECB for general corporate purposes (including working capital) from all the recognized lenders including foreign equity holders, with a minimum average maturity period of 10 years. It also appears that all Track III eligible borrowers (which also includes Track I and II eligible borrowers but excludes NBFCs, NBFCs-MFI, NGO, not for profit companies under the Companies Act, 1956/2013, developers of SEZs and NMIZs) can avail Indian rupee

denominated ECB for general corporate purposes (including working capital) from all the recognized lenders excluding foreign equity holders, with a minimum average maturity period of 3 years for ECB up to USD 50 million or its equivalent or 5 years for ECB beyond USD 50 million or its equivalent.

Under the Revised Framework, the definition of the ‘foreign equity holder’ has been simplified and includes (a) a direct foreign equity holder with a minimum direct equity shareholding of 25% in the borrower entity, (b) an indirect equity holder with a minimum indirect equity shareholding of 51% in the borrower entity or (c) a group company with a common overseas parent.

The individual limits, on the other hand, have remained the same for companies in manufacturing, infrastructure and software development sector. The following table explains the proposed model for obtaining ECBs in the permitted sectors-

 

Individual limits (per financial year) Manufacturing and Infrastructure Sector including Hospitals and Hotels Software Development Sector Other Sectors
Upto USD 200 Million or its equivalent Automatic Route Automatic Route Automatic Route
Upto USD 500 Million or its equivalent Automatic Route Approval Route Automatic Route
Upto USD 750 Million or its equivalent Automatic Route Approval Route Approval Route
Beyond USD 750 Million or its equivalent Approval Route Approval Route Approval Route

Under the Revised Framework, the criteria for determining the applicable route i.e. approval route/ automatic route is still largely based on individual limits.

Conclusion
It is pertinent to note that ECBs have developed as an instrumental mode of investment into Indian companies, which is of prime importance when the Indian Government has initiated Make in India campaign wherein the sole objective is to make FDI policy more progressive and turn India into the most coveted investment destination of the world. The RBI has envisaged applicability of the Revised Framework upon those transactions which are executed on or after December 02, 2015[9]. Thus, ECB can be availed under the older regime up to March 31, 2016, provided the loan agreement was executed prior to the enforcement of the Revised Framework i.e. December 02, 2015, except, (i) ECB facility for working capital by airlines companies; (ii) ECB facility for consistent

foreign exchange earners under the USD 10 billion scheme; and (iii) ECB facility for low cost affordable housing projects (low cost affordable housing projects as defined in the extant foreign direct investment policy) where agreement can be executed and loan registration number can be obtained by March 31, 2016 irrespective of enforcement of the Revised Framework. The minimum average maturity period with respect to the ECBs for general corporate purposes has increased for Track II eligible borrowers, from 7 years to 10 years, it has comparatively reduced for Track I and III eligible borrowers. Reshuffling of automatic/approval route, widening of the list of the recognized lenders and minimization of the restricted end-uses may further solidify investments in various sectors. As various stakeholders applaud the liberalization of policies by the RBI, the impact of the Revised Framework remains to be seen.

[1] Schedule I of Foreign Exchange Management (Permissible Capital Account Transaction) Regulations, 2000.

[2] Vide Circular No. 130 dated May 16, 2014[3] Vide Circular No. 31 dated September 04, 2013[4] Date of publication of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) (Amendment) Regulations, 2015 in the Official Gazette of Government of India – Extraordinary – Part-II, Section 3, Sub- Section (i) dated 02.12.2015- G.S.R.No.920(E).[5] Vide Circular No. 32 dated November 30, 2015[6] Master Direction – External Commercial Borrowings, Trade Credit , Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers dated January 01, 2016[7] Ibid.[8] Liberalisation of definition of Infrastructure Sector under A.P. (DIR Series) Circular No. 48 dated September 18, 2013[9] Para 2.22 of the Master Direction – External Commercial Borrowings, Trade Credit , Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers dated January 01, 2016.