Foreign Investment Received: Know About “Single Master Form” By CS Anjali Gorsia


Integrated Reporting Structure: Foreign Investment Received Issued By RBI: Single Master Form

BACKGROUND:


This article is in regards to the newly introduced reporting structure (“Single Master Form herein referred thereafter SMF “) by Reserve Bank of India (herein referred thereafter RBI) for the reporting of all Foreign Investments so received by “Indian Entities”.

Before moving forward, let’s begin with terminology like “Foreign Investments”.

Foreign Investment[1] in India is regulated in terms of clause (b) sub-section 3 of section 6 and section 47 of the Foreign Exchange Management Act, 1999 (FEMA) read with Foreign Exchange Management (Transfer or Issue of a Security by a Person Resident Outside India) Regulations, 2017 issued vide Notification No. FEMA 20(R)/2017-RB dated November 7, 2017. Where, investments can be made in shares, mandatorily and fully convertible debentures and mandatorily and fully convertible preference shares of an Indian company by non-residents, subject to the pricing guidelines/valuation norms and reporting requirements amongst other requirements as prescribed under FEMA Regulations.

Further any Indian Entity receiving foreign investments were required to report such transactions to RBI which was Regulated by Regulation 13 of the Foreign Exchange Management (Transfer or Issue of Security by Person Resident Outside India) Regulations, 2017 presently prescribes twelve (12) different types of forms for FDI reporting including Advance Remittance Form, Form FC-GPR, Form FC-TRS, Annual Return on Foreign Liabilities and Assets, Form ESOP, Form DRR, Form LLP (I), Form LLP (II), Form Convertible Notes, Downstream Investment Form, Form LEC (FII) and Form LEC (NRI).




















As the present “Reporting Structure” is not in integrated resulting in different and various forms for different type of foreign investments, RBI has introduced “Integrated Reporting Structure” in form of “Single Master Form” vide an RBI Circular[2], notified on the 7 June 2018 with the aim of simplifying reporting under the Foreign Exchange and Management Act, 1999 (FEMA). Further, On June 27th, 2018, RBI released a User Manual for Entity Master – FIRMS (User Manual)[3] which provides detailed instructions and the process for filing the Entity Master Form.
 
 
IMPLEMENTATION:

For the implementation of the above-dated circulars; RBI has announced an “ONLINE APPLICATION-FIRMS” (Foreign Investment Reporting and Management System) which will available in Two Phases:

IN THE FIRST PHASE, THE FIRST MODULE

 

ENTITY MASTER FORM

#  The Entity Master would be made available online

#  Will be available to the public for data entry between June 28 (at 1:00 pm) and July 12, 2018.

#  seeking identification details of Indian entities specifically seeks information pertaining to foreign direct investment, foreign portfolio investment and the indirect foreign investments received by the Indian entities till date

 Any Indian entity which does not comply WILL BE LIABLE FOR PENALTY: COMPLETE PROHIBITION ON RECEIVING ANY FORM OF FOREIGN INVESTMENT IN FUTURE.

IN THE SECOND PHASE, THE SECOND MODULE

 

SINGLE MASTER FORM

#  The Single Master form will be made available online

#  will be available to the public for data entry from 01st August 2018

#  It has merged eight (8) of the above twelve (12) earlier reporting requirements, along with an additional obligation of reporting in case of investment by a person resident outside India in an Investment Vehicle.

#  Four (4) forms that may remain outside the framework of SMF, and may likely continue to be filed in the manner they are currently filed with the RBI, are Advance Remittance Form, Annual Return on Foreign Liabilities and Assets, Form LEC (FII) and Form LEC (NRI)

 
Note:

As the “Single Master Form” will be available from 01st August 2018; the FAQs in regards to the form will be articulated in next series.
 
IMPORTANT POINTS: TO BE CONSIDERED; ENTITY MASTER FORM
[AVAILABLE FROM 28TH JUNE TO 12TH JULY, 20118]
 
[WEBSITE: Uniform Resource Locators (URL) of the application is https://firms.rbi.org.in]
 
Who is an entity; under “Entity Master Form”?

Entities will be those, which are eligible for receiving “investments” in India, which can issue: shares, mandatorily and fully convertible debentures and mandatorily and fully convertible preference shares.

Entity here will be any of the following:

  • A company within the meaning of section 1(4) of the Companies Act, 2013
  • A Limited Liability Partnership (LLP) registered under the LLP Act, 2008
  • A start-up which complies with the conditions laid down in Notification No. G.S.R 180(E) dated February 17, 2016, issued by Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India.
Who will fill the form?

All the entities aforesaid, being the artificial person:

  • will authorise a person who will be the sole person (only one person to be authorised for one entity)
  • However, one person can act as authorised for multiple entities
  • To add/update the foreign investment details of an Entity in the Entity Master
  • He will be entirely responsible for the data entered.
  • Authority letter[4] will be required issued by the entity for authorising personnel for such transaction.
  • Authority Letter submitted by the entity user will be verified by RBI and after RBI’s approval
  • While filling the Entity User Registration Form: The user should provide their own PAN No. (not the PAN No. of the company)
Creation of Entity Master Form[5]:

STEP I

Click on the Registration form for New Entity User & Filed Description & generate LOGIN id

STEP II

Logging on to Entity Master incorporate following Details:

 

    Entity Details Tab(Master Data)

 

    Particulars Tab(Registered office Details, etc)

 

    Foreign Investment in Company / LLP Tab.

 

    Foreign Investment Info tab (Enter all Foreign Investment received by the entity since the date of incorporation)

 

STEP III

Declaration

STEP IV

Submissions

 
Points to be noted; while incorporating details: In Foreign Investment in Company / LLP Tab:

  • Enter ALL FOREIGN INVESTMENT RECEIVED by the entity since the date of incorporation: All present (as on date received) & past (any in a previous year) have to be filled one after the other
  • ALL FOREIGN INVESTMENT, irrespective of the fact that the regulatory reporting to RBI for the same has been made or not or whether the same has been acknowledged or not.

STRUCTURE

TYPES OF INSTRUMENTS

 

In the case of Company

Paid-up Capital of the company on a [fully diluted basis][6]

In case of LLP

Total Capital contribution in LLP (in INR)

In case of start-ups

convertible notes

 
ALL FOREIGN INVESTMENT, whether direct or indirect foreign investments details; needs to be incorporated:

“The Indian companies who have made downstream investment in another Indian company for which it is considered as indirect foreign investment in terms of Regulation 14 of Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2017 dated November 7, 2017 and as amended from time to time, shall inform the same to the Indian investee company for the purpose of providing details of indirect foreign investment in Entity Master.”
 
Details of each Issue/transfer (and not investor wise) have to be filled in this page, one after the other. After entering the details of one issue user; add the details of the next issue/transfer.

Description of the allotment/transfer (whether Rights / Bonus / Share Swap / Merger / Demerger / ESOP/ NR to R transfer/ R to NR transfer etc).

  1. In the case of Company: Equity Shares, CCPS, CCDs, Share Warrants, Partly Paid up Shares
  2. In the case of LLP: Capital Contribution or Profit Share
  3. In the case of start-ups – Convertible Notes. 
Number of Instruments / Percentage of capital contribution

  • In the case of a company, the number of capital instruments issued to the foreign investors to be provided
  • In the case of LLP, the percentage of capital contribution received from the foreign entity to be provided. 
[1] Foreign Investment’ means any investment made by a person resident outside India on a repatriable basis in capital instruments of an Indian company or to the capital of an LLP;
 
Explanation: If a declaration is made by persons as per the provisions of the Companies Act, 2013 about a beneficial interest being held by a person resident outside India, then even though the investment may be made by a resident Indian citizen, the same shall be counted as foreign investment.
 
Note: A person resident outside India may hold foreign investment either as Foreign Direct Investment or as Foreign Portfolio Investment in any particular Indian company.

[5] Important Notes for Entity Master

  • All details must be provided in one go.
  • Only when all the mandatory fields have been filled, the submit button is enabled.
  • The RESET button will reset the complete form.
  • Once the details have been submitted the Entity user can modify the details.
  • The onus of the integrity of the data entered is on the Entity user. 
[6] Fully diluted basis means the total number of shares that would be outstanding if all possible sources of conversion are exercised. It includes:
  1. Equity shares: As equity shares.
  2. CCDS/ CCPS: Equivalent Equity shares. (If the conversion ratio is not fixed upfront, the company may enter the maximum number of equity shares possible upon conversion in compliance with the pricing guidelines).
  3. Share warrants: Equivalent Equity shares considering 100% exercise upfront.
  4. ESOPs: Equivalent Equity shares considering 100% exercise upfront.
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