India has emerged as a major destination for foreign investment, offering vast opportunities across various sectors. However, to ensure transparency, compliance, and regulatory oversight, the Indian government has established specific reporting requirements for entities receiving foreign investments. These regulations, primarily governed by the Foreign Exchange Management Act (FEMA) and monitored by the RBI aim to track foreign inflows, prevent financial malpractices, and maintain economic stability. This article provides a overview of the reporting obligations that businesses and investors must adhere to when receiving foreign investments in India.
Requirements as per Reserve Bank of India
The reporting formalities for foreign investment are given below:
1. Reporting for issue of capital instrument:
a. Reporting inflows: The actual inflows on account of issue of equity instruments shall be reported by the AD branch in the R-returns in the normal course.
b. Reporting of issue of equity instruments:
i. Foreign Currency – Gross Provisional Return (“FC-GPR”) shall be filed by an Indian company issuing equity instruments to a person resident outside India for an investment reckoned as FDI within 30 days from the date of issue of the equity instruments.
ii. The following cases will also require filing of FC-GPR:
- bonus or rights shares directly or on amalgamation/ merger/ demerger with an existing Indian company;
- equity instruments on account of a cross-border merger;
- shares against any funds payable by the Indian company to the person resident outside India;
- sweat equity shares and shares issued upon exercise of ESOPs;
- issue of shares on conversion of convertible notes.
iii. In case the Indian company issues equity instruments to a person resident outside India other than to the person resident outside India from who the inward remittance has been received, the form FC-GPR has to be filed along with the following documents:
- KYC reports of both the remitter and the beneficial owner.
- An NOC from the remitter for issuing equity instruments to the beneficial owner mentioning their relationship.
- A letter from the beneficial owner explaining the reason for the remitter making remittance on its behalf.
- A copy of agreement / board resolution from the investee company for issuing equity instruments to a person other than from who the remittance has been received.
c. Annual Return on Foreign Liabilities and Assets (“FLA”): An Indian company which has received FDI or an LLP which has received investment by way of capital contribution in the previous year(s) including the current year, shall submit form FLA to the RBI on or before the 15th July of each year on the FLAIR portal.
2. Reporting for Transfer of equity instruments
a. Reporting Flow of Money: The actual inflows and outflows on account of transfer of shares shall be reported by the AD branch in the R-returns in the normal course.
b. Foreign Currency-Transfer of Shares (“FC-TRS”): FC-TRS is to be filed for transfer of equity instruments between:
i. a person resident outside India holding equity instruments in an Indian company on a repatriable basis and person resident outside India holding equity instruments on a non-repatriable basis; and
ii. a person resident outside India holding equity instruments in an Indian company on a repatriable basis and a person resident in India;
iii. Transfer of equity instruments on a recognized stock exchange by a person resident outside India as prescribed under NDI Rules, 2019 has to be reported in FC-TRS;
iv. Transfer of equity instruments payment of which is on deferred basis, shall be reported in FC-TRS to the AD bank on receipt of every tranche of payment;
v. FC-TRS is required to be filed by the Indian company buying back shares in a scheme of merger/ de-merger/ amalgamation of Indian companies approved by NCLT/ competent authority.
vi. FC-TRS has to be filed with the AD bank within sixty days of transfer of equity instruments or receipt/ remittance of funds whichever is earlier.
c. Know Your Customer (KYC):
i. The sale consideration in respect of equity instruments purchased by a person resident outside India, remitted into India through normal banking channels, is subject to a KYC check by the remittance receiving AD bank at the time of receipt of funds.
ii. In case, the remittance receiving AD bank is different from the AD bank handling the transfer transaction, the KYC check shall be carried out by the remittance receiving AD bank and the KYC report be submitted by the transferor/transferee to the AD bank carrying out the transaction along with the Form FC-TRS.
3. Reporting of conversion of ECB into equity: Details of issue of shares against conversion of ECB have to be reported to the Regional Office concerned of the RBI:
a. In case of full conversion of ECB into equity, the company shall report the conversion in FC-GPR as well as in Form ECB-2 to the Department of Statistics and Information Management (DSIM), RBI, Bandra Kurla Complex, Mumbai – 400 051, within seven working days from the close of month to which it relates. Once reported, filing of Form ECB-2 in the subsequent months is not necessary.
b. In case of partial conversion of ECB, the company is required to report the converted portion in Form FC-GPR as well as in Form ECB-2 clearly differentiating the converted portion from the non-converted portion. In the subsequent months, the outstanding balance of ECB shall be reported in Form ECB-2 to DSIM.
4. Reporting of ESOPs and sweat equity shares: An Indian company issuing ESOPs to persons resident outside India who are its employees/ directors or employees/ directors of its holding company/ joint venture/ wholly owned overseas subsidiary/ subsidiaries shall file Form ESOP within 30 days from the date of issue of ESOPs.
5. Reporting of ADR/GDR Issues: The domestic custodian shall report the issue/ transfer of sponsored/ unsponsored depository receipts as per DR Scheme 2014 in Form DRR within 30 days of close of the issue/ program.
6. Reporting requirements of Limited Liability Partnerships
a. Form FDI-LLP (I): An LLP receiving capital contribution and acquisition of profit shares is required to submit a report in Form Foreign Direct Investment-LLP (I) within 30 days from the date of receipt of the amount. The form shall be accompanied by:
i. copy/ies of the FIRC/s evidencing the receipt of the remittance;
ii. a KYC report in respect of the foreign investor.
b. Form FDI- LLP (II): The LLPs shall report disinvestment/ transfer of capital contribution or profit share between a resident and a non-resident (or vice versa) within 60 days from the date of receipt of funds in Form Foreign Direct Investment-LLP (II).
7. Reporting of issue or transfer of Convertible Notes:
a. A start-up company issuing Convertible Notes to a person resident outside India shall file Form CN within 30 days of issue.
b. Transfer of Convertible Notes of a start-up company by way of sale between a person resident in India and a person resident outside India shall be reported by the transferor/transferee, resident in India, in Form CN within 30 days of such transfer.
c. The AD bank shall ensure due diligence with regards to KYC of the foreign investor/ buyer.
8. Reporting of foreign portfolio investment
a. Investment other than by NRIs/ OCIs:
i. Reporting Form LEC (FII): The AD banks have to ensure that the FPIs registered with SEBI and all investment (other than that made by NRIs/ OCIs) which is considered as Foreign Portfolio Investment is reported in Form LEC (FII) on a daily basis. It would be the bank’s responsibility to ensure that the data submitted to RBI is reconciled by periodically taking a FPI holding report for their bank.
ii. The Indian company which has issued equity instruments to FPIs which is considered as FDI shall be reported in FC-GPR.
b. Investment by NRIs/ OCI: The designated link office of the AD bank shall furnish to RBI, a report in LEC (NRI) on a daily basis, for their entire bank, investments made by NRIs/ OCIs which is considered as FPI. It would be the bank’s responsibility to ensure that the data submitted to Reserve Bank is reconciled by periodically taking a NRI holding report for their bank.
9. Downstream Investment: An Indian entity or an investment vehicle making downstream investment in another Indian entity which is considered as indirect foreign investment shall file Form DI with RBI within 30 days from the date of allotment.
10. Investment by Foreign Venture Capital Investor (FVCI): Investment in equity instruments by FVCIs is required to be reported in FC-GPR and transfer of capital instruments is required to be reported in FC-TRS.
11. Investment by persons resident outside India in units of an Investment Vehicle: An Investment vehicle issuing units to a person outside India shall file Form InVI within 30 days from the date of issue.
Conclusion
Adhering to the reporting requirements for receiving foreign investments in India is crucial for ensuring regulatory compliance and maintaining transparency in financial transactions. RBI in conjunction with the Ministry of Finance and other regulatory bodies, has established a structured framework to monitor foreign inflows, safeguard economic interests, and prevent non-compliance risks. This article tries to provide a detailed overview for market players looking to receive foreign investment for their operations.