FEMA Compliance - Foreign Exchange Management Act

For regulating the foreign exchange market in India, the Foreign Exchange Management Act, 1999 (FEMA) was introduced. This Act was passed in December 1999, substituting the earlier Act, the Foreign Exchange Regulation Act (FERA). It came into force on 01 June 2000.

The Foreign Exchange Management Act is focused on external trade payments and governs the forex transactions in the country. This Act is applicable to the whole of the country and to all branches/ offices/ agencies outside the country owned/ controlled by a person resident in India. This article sheds light on FEMA compliance.

FEMA REGULATIONS

FEMA has provided different regulations for different concerns that include:

• Issue of Security in India by a branch/ agency outside India
• Permissible Capital Account transactions
• Current Account Transactions
• Borrowing or Lending in Foreign Exchange
• Borrowing and lending in Rupees
• Deposit
• Acquisition/ transfer of immovable property outside India
• Guarantees
• Insurance
• Remittance of Assets
• Acquisition/transfer of immovable property in India
• Export and Import of Currency
• Transfer/ issue of any Foreign Security
• Establishment of a branch/ office/other places of business in India

FEMA Compliance Checklist

FLA Return

• The due date is 15 July of every year.
• Mandatory for all India companies which have received foreign direct investment (FDI) and/ or made Overseas Direct Investment (ODI) in any of the previous year/(s), including the current year
• If the Indian company has not received any fresh FDI or ODI in the latest year but has outstanding FDI and/or ODI, the company must also submit the FLA Return.
• If the Indian company does not have any outstanding FDI or ODI at the end of the reporting year, then there is no requirement to file the FLA Return.

External Commercial Borrowings

• all ECB transactions are to be reported to RBI on a monthly basis by the Borrowers.

Form FC-GPR

• Every company allotting shares to the foreign investor against receipt of foreign investment must report details of such allotment to RBI within 30 days of such allotment in Form FC-GPR.

Form FC-TRS

• When the transfer of eligible securities is made between residents and non-residents and vice-versa, it must be reported to RBI in Form FC-TRS.

Form ODI

• Where an Indian Party (IP)/ Resident Individual (RI) make an Overseas Direct Investment (ODI)

Annual Performance Report

• An IP/ RI that has made an Overseas Direct Investment is required to submit an Annual Performance Report (APR) to the AD bank regarding each Joint Venture / Wholly Owned Subsidiary (WOS) outside India.

Advance Reporting Form (ARF)

• An Indian company getting investment from outside India to issue eligible securities under the FDI Scheme.

As per the Act, if FEMA guidelines are contravened, the offender shall be liable to a penalty, where the amount is quantifiable- up to thrice the sum involved in such contravention or where the amount is not quantifiable- up to two lakh rupees. If it is a continuing contravention, the further penalty will be imposed, extending to five thousand rupees every day.