FEMA Compliance is the Foreign Exchange Management Act, which amends and regulates foreign exchange intending to carry out external trade & payments in India. It was introduced in 1999 to replace FERA (Foreign Exchange Regulation Act) and to align India's foreign exchange regulations concerning the Liberalization of the economy. That said, the former was brought into existence to streamline cross-cultural trade and solidify foreign trade and Investment, followed by international transactions.
FEMA plays a significant role in ensuring the effective utilisation of Foreign Exchange resources while overseeing unauthorised transactions. As a result, within FEMA, the non-residents of India need to comply with the rules and regulations to carry out foreign-exchange transactions seamlessly.
In non-compliance, you can be subjected to penalties and fines, which might put you in legal trouble if not adhered to. Therefore, you should comply with the rules and regulations to conduct international business smoothly.
FEMA Regulations RBI
The Foreign Exchange Management Act comprises guidelines issued by the RBI, which empower them to comply with the specified instructions regarding payments or any activities associated with foreign exchange. The Reserve Bank of India has the authority to take action based on the following factors that necessitate-
- To ensure adherence to the Act's provisions, the Reserve Bank of India (RBI) directs the authority to issue rules, regulations, or directions, summoning authorised individuals to provide the requested information.
- If a person with authority disobeys the ruling of the Reserve Bank of India (as per the Act) and does not file the required returns after being given a chance to present their case, they may face a penalty of ten thousand rupees. In addition, if they violate any other ruling, they may be subject to an extra penalty of up to two thousand rupees per day for as long as the violation persists.
Therefore, you must comply with the FEMA RBI regulations to ensure effective implementation.
What are the Eligibility Criteria for FEMA Compliance?
FEMA Compliance services can be availed by selective categories, out of which the following are of importance-
- Non-resident of India
- Foreign individuals
- Companies
- Foreign Investors
- Proprietorship concern
- Individuals with a high net worth
FEMA Compliance Checklist
FEMA Compliance Checklist consists of the following components, which are as follows-
| FEMA Compliance |
Description |
| Annual returns on Foreign Liability & investment |
The annual returns on foreign liability have to be filed by the Indian resident company, which has received Foreign Direct Investment (FDI) or overseas Direct investment (ODI) either in current or previous years. If no such investments seem to be initiated, then the company is not obligated to submit FLA each year. However, this return needs to be submitted every year. |
| Annual Performance Report |
As an Indian resident or party, if you engage in the ODI, then you can be asked to file a form under ODI I & Part II to the authorized dealer’s bank along with establishing a Wholly Owned subsidiary Outside India. Moreover, it needs to be filled out each year, either on or before 31st September. Now with this process, APR is deemed to be acknowledged and certified by an Indian statutory auditor. |
| External Financial borrowings |
As for external Financial Borrowings, borrowers will be supposed to report the information of the transactions to the apex institution every month via AD Category-I bank in ECB 2 return. |
| Advanced Reporting Form |
An Indian company, which acquires investment or shares outside India as of the Foreign Direct Investment scheme, is ought to file a report not any later than 30 days from the day of issuance of ARF receipt. |
| Form FC- GPR |
The Indian company receiving foreign investment or shares against such investments, should be able to file for the allotment with the RBI. Under which, you require sharing the details of the Foreign-currency Gross provisional return) within 30 days regarding allotment of RBI. |
| Form FC- TRS |
This form is filed by Shareholder resident, living outside India. As they transfer the Shares of an Indian company from a resident to a non-resident or, etc. This foreign currency transfer form (FC-TRS) along with the Form FC-GPR, which is shared with the dealer bank, who, then submits to RBI. |
| Form- ODI |
When a resident of India, makes an overseas payment, they are required to submit the Form-ODI. The documentary evidence acquired with the Investment in foreign joint venture or wholly-owned subsidiary, is needed to be submitted to the AD within a period of 30 days. |
FEMA Compliance Requirements
For FEMA registration, apart from an individual following legal entity shall be required to get Registration and follow FEMA compliances, as required from time to time-
- Companies incorporated under the Companies Act, 2013
- A Limited Liability Partnership (LLP) registered as per the provisions of the LLP Act 2008;
- A legal entity recognised as a start-up that fulfils the criteria prescribed for recognising a start-up under the DPIIT Scheme under the Ministry of Commerce and Industry, Government of India.
- Therefore, the RBI, along with the Govt. of India, launched the FIRM's portal intending to simplify foreign Investment reporting under one master form under Single Master Form (SMF) through which the legal entity can report FEMA compliances and can complete foreign Investment reporting without having to acquire a digital signature certificate of the authorised signatory of the business entity.
Thus, The Foreign Investment Reporting and Management System (FIRMS) is a one-stop-shop for various reporting compliances under the provisions of FEMA and is available on a 24*7 basis.
Documents Required for FEMA Compliance
The Foreign Exchange management market is deemed legislation that supervises the overall functioning of Foreign Direct exchanges. Now, let us look at the required documents for a FEMA License.
- The Need for Incorporation Certificate
- An Affidavit that states all the provided information.
- The Memorandum of Association (MOA)
- The Article of Association (AOA)
- In the case of present ventures, a copy of the joint venture agreement shareholders' agreement/ technology transfer/trademark/brand assignment agreement (as applicable).
- Copy of Downstream Intimation.
- Copy of relevant past FIPB/SIA/RBI approvals connected with the current proposal.
- The Resolution for the Board
- The Audited Financial Statement of the previous Financial Year
- List of Names, identification proof and addresses of all the foreign collaborators of the Investor entity or Company.
- Both the Pre and Post-investment pattern of the shareholding of the Investee Company.
- Relevant Foreign Inward Remittance Certificate (FIRC) where the Investment has already flowed in.
- The order of the High Court order in case of any arrangement scheme.
- The Valuation certificate has been accepted.
A Step-by-Step FEMA Compliance Process
The FEMA Compliance process consists of the following process, which is as follows-
- Step 1:- Connect with the Corp CA team
First, contact Corp CA as your one-stop solution provider.
- Step 2:- Registration undertaken by our experts
Under this step, we will help you undertake FEMA registration by visiting the online portal and registering as a "New Business user" (Business user is the applicant authorised by the business entity for reporting transactions through FIRM's portal and shall be applicable concerning one entity only).
- Step 3:- Filing of application
Then, Experts will file the FEMA Compliance with basic details such as business user, name, last name, business user address details, bank details, etc. After filling in all the details, we will recheck and apply discrepancies and errors carefully.
- Step 4:- Verification with Corp CA SME
Nris are verified by authorized case subject matter expert, authorized to deal in foreign exchange, remittances, repatriations or foreign securities under the fema act 1999 (RBI) through RBI e-KYC procedure. The approval/rejection is informed to our clients through e-mail address provided in client profile.
- Step 5:- Status of Application Issued By Registering Authority
As for the next step, the Registering authority will tell their binding decision, notifying the status as acceptance or rejection of the Registration. The reasons for the same are recorded in writing within seven days of the receipt of the application.
- Step 6:- Approval for FEMA
On getting approval for FEMA registration by the RBI, the applicant can access the FEMA portal by visiting their user workspace and can fill out necessary forms accordingly.
FEMA Compliance Guidelines
The FEMA Compliance is equipped with Guidelines which assist you in understanding its associated features. Therefore, the key points of the same are as follows-
- FEMA applies to Indian residents (only). It does not apply to the Indians residing Abroad. It also mentions criteria or how an entity should be from India, especially during the previous financial year with at least 182 days or more.
- FEMA even mentions the required fields, which require approvals and permissions from the Reserve Bank of India or the government that oversees foreign exchange.
- FEMA mentions and classifies foreign exchange transactions, grouped under two categories: capital accounts and current accounts. Here, the capital account looks at adjusting the assets and liabilities of the individual residing in India to the ones residing outside. Therefore, with a shift or a change in the assets or liabilities overseas of an Indian residing outside or the performed transaction by an Indian resident overseas is counted under the capital account, whereas the other transaction fall under the current account.
Penalties under FEMA Compliance
Suppose any person opposes the provision of this act regulation, direction and notification, as issued under this Act, or contravenes any of the conditions of the RBI. In that case, he will be liable to pay thrice the amount involved in the infringement, up to three lakhs, which is not quantifiable. And as per continued infringement, the penalty can be extended up to five thousand rupees each day, just after the first day, when the contravention continues.
Why Depend Upon Corp CA for FEMA License?
At Corp CA, our team is fuelled by an indisputable commitment to help you achieve FEMA License. With years of experience and an extensive knowledge base, we are the go-to experts for all your needs. So why settle for anything less than the best? Trust the passionate team at Corp CA to handle all your trademark needs. Contact us today, and let us help you pave the way to a successful Foreign exchange process.
