In India, Foreign Direct Investment (‘FDI’) inflows have been witnessing increase every year.
Similarly, Indian companies are going global by investing abroad in the recent past.
The importance of FEMA compliances is indispensable considering the fact there are penal consequences in case of non-compliances. The purpose of this article is to inculcate basic knowledge on Annual Compliances specified under FEMA for Indian Companies having FDI and for Indian entities having investments in overseas Joint Venture (‘JV’) and/or Wholly Owned Subsidiary (‘WOS’).
The concept of Annual return on Foreign Liabilities and Assets was notified under the regulations of FEMA Act, 1999. Later, RBI vide notification no- RBI/2010-11/427 A.P. (DIR Series) Circular No. 45 introduced the concept of Foreign Assets & Liabilities Return which is an annual return of all investments made in the company during a financial year, is required to be submitted directly by the Company to the RBI.
What is Annual Return on Foreign Liabilities and Assets?
In order to capture the statistics relating to FDI in a more comprehensive manner as also to align it with international best practices, the RBI has introduced the requirement to file Annual Return on Foreign Liabilities and Assets (‘FLA Return’).
ELIGIBLE COMPANIES TO SUBMIT THE FLA RETURN
The annual return on Foreign Liabilities and Assets (FLA) is required to be submitted directly by all the Indian companies which have received FDI (foreign direct investment) and/or made FDI abroad (i.e. overseas investment) in the previous year(s) including the current year i.e. who holds foreign Assets or Liabilities in their Balance Sheets.
However, if the company has not ‘received any fresh FDI and/or ODI (overseas direct investment)’ in the latest year but the company has outstanding FDI and/or ODI, then that company is also required to submit the FLA Return every year by July 15.
While, following companies are not required to submit FLA Return, which is as follows:
Where Indian company does not have any outstanding investment in respect of inward and outward FDI as on end-March of the reporting year, the company need not submit the FLA Return.
If a company has received only share application money and does not have any foreign direct investment or overseas direct investment outstanding as on end-March of the reporting year, then that company is not required to fill up FLA return.
If all non-resident shareholders of a company have transferred their shares to the residents during the reporting period and the company does not have any outstanding investment in respect of inward and outward FDI as on end-March of the reporting year, then the company need not submit the FLA Return.
If Shares are issued by reporting company to non-resident on Non-Repatriable basis, then it should not be considered as the foreign investment; therefore, companies which have issued the shares to non-resident only on Non-Repatriable basis, are not required to submit the FLA Return.
SUBMISSION OF RETURN
RBI has prescribed the format of FLA Return as an Excel sheet, which is available on RBI website.
It is required to be submitted by all the India resident companies which have received FDI and/ or made overseas investment in any of the previous year(s), including current year by July 15 every year. Non-filing of the return before the due date will be treated as a violation of FEMA and penalty clause may be invoked for violation of FEMA.
The duly filled form is required to be mailed to email@example.com by July 15 every year from the official email id of any authorized person like CFO, Director, Company Secretary etc. Acknowledgement will be forwarded to both email ids (sender and mentioned in Contact Details).
Procedure of Filing:-
The FLA Return has to be submitted in excel based format, which has inbuilt checks and validations, any other attachment should not be forwarded along with the FLA return.
Company’s financial details along with other relevant details need to be filled in the return based on the audited financial accounts.
After filling in the requisite details, the Company can file the FLA Return by e-mailing the same to the RBI at firstname.lastname@example.org an official E-mail address of any authorized person.
On submission of the FLA return, an acknowledgement will be forwarded to the E-mail address of the authorised person.
Any query regarding the filling of FLA return should be sent to email email@example.com. You may also contact RBI person handling FLA return.
INFORMATION REQUIRED TO BE REPORTED IN FLA RETURN
If the 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 get audited and there are revisions from the provisional information submitted by the company, they are supposed to submit the revised FLA return based on audited accounts by the end – September.
If Account Closing Period of the company is different from the reference period, then the information should be given for the reference period on internal assessment.
PARTNERSHIP FIRMS VIS-À-VIS FLA RETURN
FLA Return is required to be submitted by Registered Partnership Firms (Registered under Partnership Registration Act) as well, if the Partnership firms, Branches or Trustees have any outward FDI outstanding as on end-March of the reporting year, then they are required to send a request mail to get a dummy CIN number which will enable them to file the Excel-based FLA Return. If any entity has already got the dummy CIN number from the previous survey, they should use the same CIN number in the current survey also.
It is also informed that these dummy CIN numbers are provided by RBI for filling the excel based FLA return only and not for any other purpose.
Four important points that one should know about FLA Returns:
Due Date:- FLA is required to be submitted by July 15 every year. In case FLA filed on the basis of provisional accounts, revised FLA is to be filed based on audited accounts before September end.
Non Compliance:- Non-filing of the return before the due date will be treated as a violation of FEMA and penalty clause may be invoked for violation of FEMA. The penalty as prescribed under the FEMA is “THRICE” the sum involved in contravention or Rs. 2 lakh if the offence is non-quantifiable and if the contravention is continuing every day, then Rs. Five Thousand for every day after the first day during which the contravention continues.
Compounding for the delay in the filing:- The powers to compound the contraventions have been delegated to all Regional Offices of RBI (except Kochi and Panaji) without any limit on the amount of contravention.
Where Indian company does not have any outstanding investment in respect of inward and outward FDI as on end-March of the reporting year.
If a company has received only share application money and does not have any foreign direct investment or overseas direct investment outstanding as on end-March of the reporting year.
Companies which have issued the shares to non-resident only on Non-repatriable basis are not required to submit the FLA Return.
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