FDI and its reporting under the present scenarioAkansha Dhingra
Over the past few years, Foreign Investors’ interest to invest in India has increased many folds. This has been due to various reasons such as rise in population which results in low labour cost, growth in infrastructure, rise in purchasing power due to increased per capita income, updated technology due to latest collaborations, innovations and a new hub of tech start-ups, aspiring Government reforms, rise in young population which results in high productivity, growth, and the biggest factor. Nowadays India is the second biggest market in terms of consumption of goods and services and various other reasons. India provides tremendous business opportunities to non-resident.
Earlier investing in India was not everyone’s cup of tea. There were a lot of restrictions and procedurals issues, but after the introduction of various policies by the Government, India has been able to attract a good amount of foreign exchange in the form of Foreign Direct Investment (FDI) and Portfolio Investment.
When a Non Resident has decided that he will invest in India, now we will take a look at all the ways through which he can start his business activities in India. (Apart from portfolio investment in already established businesses in India)
There are various forms of establishing a business in India which is as follows:
1. To set up an Indian Company: A Foreigner or Foreign Company intends to set up a business in India can do so by setting up a new company or by engaging in existing Company (Private or Public) under Companies Act, 2013. The company can be set up in any of the way mentioned below:
• Joint Venture: They can form a Joint Venture Company where maximum where the maximum ratio shall be held by the Indian Company or Firm.
• Wholly Owned Subsidiary: They can also hold 100% ownership in Indian Companies but this form is valid only for those areas where 100% FDI is allowed by Government.
2. To set up a Foreign Company: A Foreign Company incorporated under foreign laws can also do business in India by setting up an office in India like Branch Office, Liaison Office and Project Office.
3. To set up an LLP: A Foreigner or Foreign Company can also set up an LLP (Limited Liability Partnership) in India. As in case of LLP, there are lesser compliances as compared to Private Company. FDI through setting up of LLP has opened new investment opportunities in India.
4. To register in a startup: Foreign Direct Investment can also be made by setting up of a startup which again opens tremendous opportunities for investment in India.
Thus, we can say that after simplifying the form of Investment in India by Government, Foreign Direct Investment is at rising.
Though Government had introduced various policies to raise FDI, there are various reporting guidelines as prescribed under FEMA Regulations.
As per FEMA Regulations, 2017 there are various forms in respect of FDI reporting such as Form FC-GPR, Advance Remittance Form, Annual Return on Foreign Liabilities and Assets, Form FC-TRS, , Form DRR, Form ESOP, Downstream Investment Form, , Form Convertible Notes, Form LEC (NRI), Form LEC (FII), Form LLP (I) and Form LLP (II).
In order to simplify the reporting guidelines under the Foreign Exchange and Management Act 1999 Reserve Bank of India vide notification dated June 07, 2018 has issued a circular stating two major developments (Entity Master Form and Single Master Form) in the reporting guidelines related to Foreign Investment in India. To implement the above circular, RBI has issued an online application (FIRMS- Foreign Investment Reporting and Management System) which is available in two modes stated below:
1. Entity Master Form: Any Indian Entity who has received Foreign Direct/Indirect in present or past have to file EMF with RBI.
Under EMF, all the Indian Entities shall provide all the details related to Foreign Investments received till date irrespective of the fact that entities have given the details of such investment to RBI earlier.
EMF shall be available on RBI Portal between June 28 and July 12, 2018. Further, the date has been extended till July 20, 2018. During this period, all the Indian Entities already having Foreign Investment will have to report to RBI stating the details of Foreign Investment since the date of Incorporation.
Indian Entities not complying with the aforesaid provisions will be treated as non-compliance of law under FEMA Act, 1999. Hence, it will not be able to receive Foreign Investment thereafter.
Here Indian Entities includes Company registered under Companies Act, 2013, LLP registered under Limited Liability Partnership Act, 2008 and start-up recognized by Department of Industrial Policy and Promotion.
2. Single Master Form: This form will be made available online w.e.f. August 01, 2018. It has consolidated eight out of 12 forms mentioned above relating to reporting requirements under Exchange and Management Act 1999.
Remaining Four Forms such as Annual Return on Foreign Liabilities and Assets Advance Remittance Form, Annual Return on Foreign Liabilities and Assets, Form LEC (FII) and Form LEC (NRI) remain outside the structure of Single Master Form (SMF) and it will continue to be filed with RBI as earlier. SMF is an integrated Form for reporting total foreign investment in India made by a person residing outside India.
Hence, from the above, it is concluded that though Foreign Direct Investment has been raised through the introduction of various policies by the government but it will become more liberal after implementation of new reporting requirements laid down by Reserve Bank of India.