Foreign Investment in India

Received (FDI) Foreign Direct Investments? If the answer is yes, then you need to comply with RBI new directive on Single Master Form (SMF) for reporting of FDI ( Foreign Direct Investment) all entities have to entity master form with 12th July 2018 and RBI has extended the Due of updating the entity master form from 12th July 2018 to 20th July 2018, RBI NOTIFICATION-ALL NEW FILINGS FOR FC-GPR, FC-TRS, LLP-I, LLP-II AND CN WILL BE IN SMF ONLY W.E.F September 01, 2018. FC-GPR AND FC-TRS SHALL NOT BE FILED ON EBIZ

Who needs to file FDI (Foreign Direct Investment) Reporting In Single Master Form (SMF) with RBI?

• All Company which has received FDI Foreign Direct Investment in India (A company within the meaning of section 1(4) of the Companies Act, 2013)
• All LLP which has received FDI Foreign Direct Investment in India (A Limited Liability Partnership (LLP) registered under the Limited Liability Partnership Act, 2008)
• • A startup which complies with the conditions laid down in Notification No. G.S.R 180(E) dated February 17, 2016 issued by Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India
• RBI NOTIFICATION-ALL NEW FILINGS FOR FC-GPR, FC-TRS, LLP-I, LLP-II AND CN WILL BE IN SMF ONLY W.E.F September 01, 2018. FC-GPR AND FC-TRS SHALL NOT BE FILED ON EBIZ,  RBI Circular FE.CO.FID/1282/10/02/035/2018-19 dated 31 August 2018

How to create an account for creating Single Master Form (SMF) using entity master form?

RBI will provide an online interface to existing Company and LLP which has received investment for filing information on total foreign investment for a period of 15 days from 28 June 2018 to 12 July 2018 now extended up to 20th July 2018  prescribed Entity Master Form.

Login into https://firms.rbi.org.in/firms/faces/pages/login.xhtmlo 

As per the RBI notification following Indian entities, which have received foreign direct investment (FDI), must get themselves registered with Entity Master Form:

• A company within the meaning of section 1(4) of the Companies Act, 2013;
• A Limited Liability Partnership (LLP) registered under the Limited Liability Partnership Act, 2008;
• A startup which complies with the conditions laid down in Notification No. G.S.R 180(E) dated February 17, 2016 issued by Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India

In case of a company, all type of companies, whether public or private, listed or unlisted, Section 8 or For-profit, government or non-government, all are required to file the Entity master form if it has received foreign investment under Foreign Direct Investment (FDI) Rules specified by RBI

• Companies covered under Section 1 (4) of Companies Act, 2013:
• companies incorporated under this Act or under any previous company law;
• insurance companies, except in so far as the said provisions are inconsistent with the provisions of the Insurance Act, 1938 or the Insurance Regulatory and Development Authority Act, 1999;
• banking companies, except in so far as the said provisions are inconsistent with the provisions of the Banking Regulation Act, 1949;

Due to the launching of SMF portal on 1 Septemeber, 2018, e-biz portal would no longer be available for filing.  All the Banks are advised to all filings pending for disposal in the e-biz portal at the earliest on or before  20 September 2018.  All Banks should send a weekly report to this effect has to be forwarded to Regional Office, RBI, FED giving details fo cases pending and cases cleared, for monitoring.

Where the entities have not been able to register for the Entity master, they may do so from September 01, 2018. However, they may provide the reasons for not registering within the time period along with the authority letter.

Further, it is also observed that many cases are pending at the company/entity level for resubmission with clarification or additional documents. You are, therefore, advised to immediately inform all your clients who have received foreign investment to ensure that cases, where resubmission was to be done, should be done within one week with complete documents failing which it would not be possible for us to treat the FCGPR as filed.

Entity Master is the first step in the compliance of  foreign investment reporting, it is a  one-stop portal  which has been introduced with the objective of obtaining data on foreign investment in an Indian entity at a single point instead of multiple forms such as AFR ( Advance reporting Forms), FC-GPR (Reporting of Issue of Shares)

This form mandates Indirect investment made through downstream investment route also to be made after the introduction of interface FIRMS (Foreign Investment Reporting and Management System), all invest both direct investment and indirect foreign investment are to be reported to RBI

The indirect foreign investment is reported by the investor company in Form DI (Downstream Investment. The investee company was never required to report the indirect foreign investment received by it.

What constitutes Foreign Direct Investment?

A company or LLP is said to have foreign investment if:

• any shareholder is non-resident; or
• has a corporate shareholder which is owned or controlled by a person resident outside

What previous forms used for FDI (Foreign Direct Investment) Reporting now subsumed Single Master Form (SMF)?

SMF would subsume the following forms for reporting of foreign direct investment:

1. Form FC-GPR – Issue of capital instruments by an Indian company to a person/company residing outside India
2. FC-TRS – Transfer of capital instruments(Share Transfer) between a person resident outside India and a person resident in India
3. LLP-I – FDI in LLP through capital contribution and profit shares
4. LLP-II – Disinvestment/ transfer of capital contribution and profit shares in LLP
5. Form ESOP – Issue of ESOPs / sweat equity shares/ shares against exercise of ESOP by an Indian company to an employee resident outside India.
6. Form CN – Issue or transfer of convertible notes Form DRR – Issue/transfer of Depository Receipts Form DI – Reporting of downstream investment (indirect foreign investment) in a company or LLP
7. FormIn Vi- Reporting of investment by a person resident outside India in an investment vehicle Conclusion

What are previous forms used for FDI (Foreign Direct Investment) Reporting NOT subsumed Single Master Form (SMF)?

• Advance Remittance Form (ARF): Reporting of the amount of consideration received for issue of capital instruments ( Issue of Shares). 6 Pointer Know Your Customer (KYC) Form is also submitted along with the same. This hs to  submitted on ebiz portal
• Annual Return on Foreign Liabilities and Assets (FLA): To be Submitted annually on or before the 15th day of July of each year. This has to be only through E-Mail to jurisdictional RBI, the email id which it needs to be sent is fla@rbi.org.in
• Form LEC(FII): The AD( Authorised Dealer Category 1 ) banks ( Banks in which you hold the account) have to ensure that the FPIs registered with SEBI who are purchasing various securities (except derivative and IDRs) should report all such transactions details (except derivative and IDRs) in the Form LEC (FII) to Foreign Exchange Department, Reserve Bank of India, Central office This has to  submitted on ebiz portal
• LEC(NRI): The Authorised Dealer Category I banks shall report to the Reserve Bank in Form LEC (NRI) the purchase/ transfer of capital instruments by Non-Resident Indians or Overseas Citizens of India stock exchanges in This has to submitted on ebiz portal

 To register on Entity Master, the reporting Indian entity must authorize a single person to act as ‘Entity User’, by issuing an authority letter in his favor. The format of authority letter form RBI The Entity User will be solely responsible for the information reported and shall be the point of contact for RBI, with regards to foreign investment in the entity.

The entity must also collate and keep all the data in relation to foreign investment, including direct and indirect foreign investment, ready.

What are Capital Instruments under FEMA (Foreign exchange Management?

‘Capital Instruments’ means equity shares, debentures, preference shares and share warrants issued by an Indian company;

Capital Instruments  shall include the following:

• Equity shares,
• Compulsorily Convertible Preference Shares,
• Compulsorily Convertible Debentures,
• Share Warrants,
• ESOPs
• Any other instrument as may be defined

What is the definition of  ‘Foreign Direct Investment’ under FEMA Act?

Regulation 2(xvii) of FEMA (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 defines it as follows:

“Foreign Direct Investment‟ (FDI) means investment through capital instruments by a person resident outside India in an unlisted Indian company; or in 10 percent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company;”

• Direct investment in capital instruments of an unlisted company,
• Direct investment in capital instruments of a listed company, accounting for 10% or more of post issue paid-up equity capital on a fully diluted basis.

Understanding ‘fully-diluted basis’ under FEMA Act?

Fully diluted basis means the total number of shares that would be outstanding if all possible sources of conversion are exercised. That is on the occurrence of a conversion event that maximum shares that would be present

• Equity shares: As equity shares
• Compulsory Convertible Debentures/Compulsory Convertible preference shares
• Share warrants: Conversion of Share warrants into equity shares
• ESOPs: Employee stock option plans when converted into equity
• For start-up company has issued, convertible notes the same shall not be included in the paid-up capital on fully diluted.

Fully diluted basis means the total number of shares that would be outstanding if all possible sources of conversion are exercised. It includes:

• Equity shares: As equity shares
• a start-up company has issued, convertible notes the same shall not be included in the paid-up capital on fully diluted.
• CCDS/ CCPS: Equivalent Equity shares (maximum)
• Share warrants: Equivalent Equity shares considering 100% exercise upfront
• ESOPs: Equivalent Equity shares considering 100% exercise upfront

What are the consequences of Non-Compliance Single Master Form (SMF)?

Companies/LLP which is not complying with this filing of Entity Master Form will not be able to receive foreign investment (including indirect foreign investment) and will be considered as non-compliant with FEMA and regulations made thereunder.

Conclusion:

It’s a very important step taken by RBI to streamline FDI received and the process of reporting the FDI this would resolve the majority of the problems faced in the current filing system

In case of any help or assistance in filing FDI (Foreign Direct Investment) Reporting In Single Master Form (SMF), contact Virtual auditor support team on 9962 260 333/044- 48560333 /mail us support@virtualauditor.in, our team will guide through the entire process and help you comply