In any country where capital is scarcely available, Foreign Direct Investment (FDI) has been an important source of funds. This provision has contributed a great deal in helping India’s economy and improving the potential of various Indian entities. Under FDI, overseas money, either by an individual or entity, is invested in an Indian company but these transactions are required to be reported timely as well. Here are the FDI reporting requirements simplified by RBI.

1 Modes of FDI

In India, investment can be made either through the Automatic Route, which does not require approval from RBI, or through the Approval Route, which requires prior approval from the concerned Ministries/Departments via a single window – Foreign Investment Facilitation Portal (FIFB). This portal is administered by the Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce and Industry, Government of India.

2 Forms of Business for foreigners

A Foreign business entity can enter the Indian market through a variety of alternatives, subject to general conditions mentioned in FDI Policy. Some of the possible ways are:

2.1 As an Indian Company, either by setting up a wholly owned subsidiary or Joint Venture with an Indian entity or person.

2.2 By operating as a Foreign Company and being registered with the Registrar of Companies, MCA.

2.3 Liaison office – This type of office is only allowed to collect market information and liaison with the foreign company. They are not allowed to earn income from any activities.

2.4 Branch Office – The scope of activities of BOs is much larger as compared to Liaison Offices. BOs are allowed to generate revenue by providing professional services and technical support for products imported/assembled/manufactured by the parent/holding company.

2.5 Project Office – Set up to execute specific projects, project offices are allowed in India if:

I. The foreign entity has secured a contract in India, which will be funded via inward remittance by either a bilateral or multilateral financing agency.

II. Loan has been sanctioned by a public financial institution or bank to the Indian company contracting the project.

3 FDI reporting requirements by RBI

• The Reserve Bank of India (RBI) vide A.P (DIR Series) Circular No. 30 dated June 07, 2018 (FDI Circular) has 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- the Single Master Form (SMF). Through this form the Indian entities can easily do foreign investment reporting, without using the digital signature certificates of the authorised signatories. Further, with the introduction of the SMF, the RBI is also dispensed with the requirement of filing the advance reporting form by the Indian companies.

• The RBI via FDI Circular also introduced a new interface, namely Entity Master Form (EMF), for 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.

It is important to note that the creation of an EMF account is the first step. 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. 

[NOTE: 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. 

With the implementation of EMF and SMF, the provision of seeking clarification or 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, and in case of rejection- the reasons for rejection are mentioned in the email, 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:

3.1 FGPR

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

3.2 FCTRS

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 the Foreign Currency-Transfer of Shares (FCTRS) Form, within 60 days of transfer of equity instruments or receipt/remittance of funds, whichever is earlier.

3.3 LLP (I) Form

A Limited Liability Partnership (LLP) that is receiving an amount of consideration for the capital contribution should file the LLP(I) Form, within 30 days from the date of receipt of the amount of consideration.

3.4 LLP (II) Form

The resident transferor or transferee, as the case may be, are required to file the 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.

3.5 CN Form

The Indian start-up company, which is issuing convertible notes to a person resident outside India, is required to file the CN Form, within 30 days from the date of issuance of the convertible notes. Further, the resident transferor or transferee also must file the 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.

3.6 DRR Form

The domestic custodian who issues/transfers the depository receipts, in accordance with the Depository Receipt Scheme, 2014 is required to report it in the DRR Form, within 30 days of issuance or transfer of depository receipts.

3.7 ESOP Form

Any Indian company that issues the 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(s), should file the ESOP Form, within 30 days from the date of issuance of employees’ stock option.

3.8 DI Form

An Indian entity, or an investment Vehicle, that is making downstream investments in another Indian entity, which is considered as indirect foreign investment for the investee Indian entity, is required to file the DI Form, within 30 days from the date of allotment of equity instruments.

3.9 INVI Form

An Investment vehicle, which has issued its units to a person resident outside India, is required to file the INVI Form, within 30 days from the date of issuance of units.

The new Regulations also provide 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.

4 Conclusion

While the processing of the applications in consolidated SMF form in a given timeframe has eased the reporting of FDI transactions. However, there is an obvious 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/accounts 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/accounts.