Annual Return on Foreign Liabilities and Assets (FLA Return) under FEMA 1999 by CS Yash Pareek (www.csyashpareek.in)
||Om Shri Ganeshay Namah||
Annual
Return on Foreign Liabilities and Assets
(FLA
Return) under FEMA 1999
TEAM
YPA
Prepared by CS Yash Pareek
Valuable inputs by CS Neha Jain & CS Gajab Maheshwari
YASH PAREEK &
ASSOCIATES
Company Secretaries
BHOPAL | INDORE |
NAGPUR | AHMEDABAD
Reach us at:
Address: T-3,
3rd Floor, 207, M.P Nagar, Zone-II, Bhopal-462011, M.P
Mobile No: 9111575222
Email id: pcsyashpareek@gmail.com
Annual
Return on Foreign Liabilities and Assets
(FLA Return)
under FEMA 1999
CS Yash Pareek has tried to compile some key points and
extracts of the provisions of Foreign Exchange Management Act (FEMA), The
Foreign Exchange Management (Transfer or Issue of Security by a Person Resident
Outside India) Regulations, 2017 & FAQ/instructions issued by the Reserve
Bank of India relating to Annual
Return on Foreign Liabilities and Assets (FLA Return) under FEMA 1999 which are
presented below for your reading and reference:
1.
Foreign Direct Investment (FDI):
1.1 Foreign Direct Investment (FDI) is the
investment through capital instruments by a person resident outside India
(a) in an unlisted Indian company; or
(b) in 10 percent or more of the post
issue paid-up equity capital on a fully diluted basis of a listed Indian
company
1.2 If the Indian company has issued the
shares to non-resident entities under the FDI scheme in India, then it should
be reported under the Foreign Direct Investment in India (Liabilities), Section
III of the return Annual Return on Foreign Liabilities and Assets (FLA Return)
under FEMA 1999.
2.
Overseas Direct Investment Scheme (ODI):
2.1 Overseas Direct Investment or ODI is an
investment made outside India in a Joint Venture (JV) or Wholly Owned
Subsidiary (WOS) either under Automatic Route or Approval Route. The investment
is made by contribution to capital, subscription to memorandum of a foreign
company, or acquisition of existing shares of a foreign entity by market
purchase, private placement or stock exchange.
2.2 If the reporting Indian company invests
in equity and/or participating preference shares of overseas company, under the
Overseas Direct Investment Scheme in India, i.e. investment in Joint venture or
wholly owned subsidiaries abroad, then it should be reported under Section IV
of the FLA return.
2.3 If the Indian company holds 10 per cent or
more equity plus participating preference shares together, in overseas company,
then it should be reported under 1.b ODI (item 1.1, claims on
direct investment enterprise). However, if the Indian company holds less than
10 per cent of the equity plus participating preference shares capital of
overseas company, then it should be reported under 2.b DI (item 1.1, claims on
direct investment enterprise). In both the cases, the Indian company is called
as the Direct Investor (DI) while the overseas company is called as Direct
Investment Enterprise (DIE).
3. Direct Investment
3.1 Direct investment is a category of
international investment in which a resident entity in one economy [Direct
Investor (DI)] acquires a lasting interest in an enterprise resident in another
economy [Direct Investment Enterprise (DIE)].
It consists of two components, viz., Equity Capital and Other Capital.
3.1.1 Equity Capital under Direct Investment
It covers
(1) Foreign equity in branches and all
shares (except non-participating preference shares) in subsidiaries and
associates;
(2) Contributions such as the provision of
machinery, land & building(s) by a direct investor to a DIE by equity
participation;
(3) Acquisition of shares by a DIE in its
direct investor company, termed as reverse investment (i.e. claims on DI).
3.1.2 Other
Capital under Direct Investment
The other capital component
(receivables and payables, except equity and participating preference shares
investment) of direct investment covers the outstanding liabilities or claims
arising due to borrowing and lending of funds, investment in debt securities,
trade credits, financial leasing, share application money etc., between direct
investors and DIEs and between two DIEs that share the same direct Investor.
Non-participating preference shares owned by the direct investor are treated as
debt securities & should be included in ‘other capital’.
4. Annual Return on Foreign Liabilities and
Assets:
Annual return on Foreign Liabilities
and Assets has been notified under FEMA 1999 and 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 15th every year.
5. Statutory
Act & Statutory Body:
Foreign Exchange Management Act (FEMA),
The Foreign Exchange Management (Transfer or Issue of Security by a Person Resident
Outside India) Regulations, 2017 & Reserve Bank of India.
6. Entities
covered:
6.1 All the India resident companies which
have received FDI and/ or made overseas Investment in any of the previous
year(s), including current year i.e. who holds foreign Assets or Liabilities in
their Balance Sheets.
6.2 If
the Partnership firms, Branches or Trustees have any outward FDI outstanding as
on end-March of the reporting year.
6.3 LLPs
which have received FDI and/ or made overseas investment in any of the previous
year(s), including current year i.e. who
holds foreign Assets or Liabilities in their Balance Sheets.
6.4 Others, including SEBI-registered
Alternative Investment Funds (AIFs), Investment Vehicles, Public Private
Partnerships, etc
7. Whether NIL Return is required to be
filed?
7.1 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.
7.2 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 required to submit the FLA Return every year by July 15th.
8. Due
date by which Return is to be filed:
15th July every year.
9. Return
filing after Due date:
You can file the annual return after the due date only by
taking necessary approval from
RBI.
10. Figures based on Audited or Unaudited
Accounts:
If the
company’s accounts are not audited before the due date of submission, i.e. July
15th, then the FLA Return should be submitted based on unaudited (Provisional)
accounts.
11. What if there
are deviations in the Audited Accounts from the Provisional Information submitted in FLA return:
Once the accounts gets
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 end – September.
12. Exemptions:
Companies are exempted from filing FLA return in the following cases:
12.1 Shares issued by reporting company to non-resident on Non-Repatriable basis should not be considered as foreign investment; therefore, companies which have issued the shares to non-resident only on Non-Repatriable basis, is not required to submit the FLA Return.
12.2Companies who do not have any outstanding balance of FDI or ODI by the end
of the financial year are exempt from filing FLA return.
12.3 If a Company has received only share application money and does not have any
FDI or ODI outstanding as on 31st March; i.e. allotment has not been made till the end of financial year.
12.4 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.
13. Foreign Trade Credits and Trade Payables:
Corporate entities are ‘not’ required to submit the FLA
return where FDIs and/or ODIs are ‘not’ outstanding as on 31st March ‘beside’
trade credits and trade payables are outstanding as on 31st March
14. Can an entity file Annual Return for the
previous year? What if they want to delete or modify the annual return filed in the previous
year?
Yes, the entity can very well do it. However,
they are required to take prior approval from RBI.
15. Penalty for Non-filing:
Non-filing of the return before due date will be treated as a violation of FEMA and penalty clause may be invoked for violation of FEMA i.e. the company will be liable to pay a penalty of thrice the sum involved in the contravention. In case it is not quantifiable, then a penalty of Rs 2,00,000 will have to be paid by the company. If the contravention is continuing, a penalty of Rs 5,000 per day will have to be paid by the company.
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.
16. Whether FLA
needs to be filed where APR has already been filed for ODIs.
Indian corporate entities are also required to file the FLA return for the ODIs where the Annual Performance Report (APR) has ‘already’ been filed for the ODIs.
CONCLUSION:
Professional and companies need to ascertain the FDI & ODI to identify whether a particular company needs to file FLA return or not. Due diligence of various measures is required to correctly file Annual return such as ascertainment and computation of Foreign investment under various instruments such as equity, preference, difference between investment and foreign trade credits, export sales and revenue, date of remittance, and other important parameters.
Happy Reading.
CS
Yash Pareek
ICSI Silver Medalist
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Disclaimer
The entire contents of this document have been prepared
on the basis of relevant provisions and as per the information as available at
the time of the preparation. Although care has been taken to ensure the
accuracy, completeness and reliability of the information provided, I assume no
responsibility therefore. Users of this information are expected to refer to
the relevant existing provisions of applicable Laws. The user of the
information agrees that the information is not a professional advice and is subject
to change without notice. I assume no responsibility for the consequences of
use of such information. In Any Event I Shall Not Be Liable For Any Direct,
Indirect, Special or Incidental Damage Resulting From, Arising Out of or In
Connection With the Use of the Information.
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