Reporting of FDI

Foreign Direct Investment (FDI) reporting is a critical component of India’s Foreign Exchange Management Act (FEMA) of 1999. Foreign Direct Investment (FDI) is defined as an investment by a person resident outside India in an unlisted Indian company or in 10% or more of the post-issue paid-up capital on a fully diluted basis in a listed Indian company through capital instruments (equity shares, debentures, preference shares, and share warrants).

FDI in various sectors is permitted through either an automatic or a government route. The non-resident or Indian company does not need to seek approval from the Government of India under the Automatic route. The Government route, on the other hand, requires government approval prior to investment. The respective Administrative Ministry / Department reviews proposals for FDI under the Government route.

The most common method of FDI in India remains the issuance and transfer of equity shares in an Indian company to a foreign investor. The difficulty that investors/investees face is in reporting such transactions to the RBI in accordance with the Foreign Exchange Management Act (FEMA).

In 2018, the RBI launched FIRMS (Foreign Investment Reporting and Management System), an online reporting platform for reporting foreign investment in India in Single Master Form. FEMA 20(R) requires foreign investment in India to be reported through various returns, i.e. 9 separate forms that have been consolidated into one Single Master Form (SMF), and FIRMS provides 24*7 online reporting facilities for the applicant.

The FIRM’s registration process is divided into two stages: 

  1. EU Entity User: An Entity User is a person authorized by the entity (company/LLP/start-up) in which a foreign investor has made an investment to register as an entity in the Entity Master of the FIRMS application. The EU would be the only person authorised to add/update an Entity’s foreign investment details in the Entity Master and would be solely responsible for the information entered. Each entity can only have one EU.
  1. The applicant who reports the transaction in the Single Master Form at FIRMS is known as a business user (BU). A BU may only access his login information through the entity that has granted him permission to report transactions. The person must register separately if he intends to represent another entity as a BU. These BUs can be individuals who represent Indian companies when they issue shares or anyone who needs to report the transfer of shares they own in Indian companies to foreign investors.

Here are key points regarding the reporting of FDI under FEMA:

Reporting Entities:
Depending on the type and nature of the transaction, different entities are responsible for reporting FDI. The Indian company receiving the investment, authorised banks, designated depositories, and other intermediaries involved in the FDI transaction are examples of reporting entities.

Reporting Deadlines: For FDI transactions, timely reporting is critical. The specific reporting timelines vary depending on the type and amount of investment. Typically, reporting should be completed within a specified time frame beginning with the date of the transaction or the receipt of funds, whichever comes first. Furthermore, ongoing FDI transactions may necessitate regular reporting, such as annual or quarterly reporting.

Reporting Forms: To capture relevant information about FDI transactions, the Reserve Bank of India (RBI) provides standardized reporting forms. These forms collect information such as the investor’s personal information, the recipient entity, the amount and type of investment, the sector involved, and the purpose of the investment.

Reporting Channels: FDI reports are typically submitted electronically via the RBI’s dedicated reporting portals or platforms. The regulatory authorities communicate specific reporting channels and procedures, which may be updated on a regular basis to ensure efficient reporting.

Non-Reporting and Penalties: Failure to comply with FDI reporting obligations may result in penalties and legal consequences. Under FEMA provisions, failure to report or provide inaccurate or incomplete information may result in fines, penalties, restrictions on future investments, and potential legal action.

Foreign investors, Indian companies, and relevant intermediaries involved in FDI transactions must be aware of their specific reporting obligations. To ensure compliance with FDI reporting requirements, it is critical to stay up to date with the RBI’s guidelines, circulars, notifications, and other regulatory sources.

G Akshay Associates