FEMA-Compliances Seminar 06072013

8/22/2019 FEMA-Compliances Seminar 06072013

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FEMA - Compliances

By CA G. Murali Krishna,

ACA, ACS and M.Com


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What is FEMA

FEMA stands for FOREIGN EXCHANGE

MANAGEMENT ACT

The act has been enacted by the Government

of India in the year 1999 in substitution of

existing law viz., Foreign Exchange Regulation

Act, 1973

The act has been implemented w.e.f.

01/06/2000

6th July, 2013 FEMA - Compliances - by CA G.Murali Krishna - 9849992493


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Definition of Resident in India (2 (v))

13th August, 2012 3FEMA - Import and Export of Goods/ Services - by CA Gottipati MuraliKrishna; 9849992493; [email protected]

a person residing in India for more

than 182 days during the course ofthe preceding financial year

A person who has gone out of India or

who stays outside India, in either case-

(a) for or on taking up employment

outside India, or

(b) for carrying on outside India a

business or vocation outside India, or(c) for any other purpose, in such

circumstances as would indicate his

intention to stay outside India for an

uncertain period;

A person who has come to or stays in

India, in either case, otherwise than-

(a) for or on taking up employment in

India, or

(b) for carrying on in India a business or

vocation in India, or(c) for any other purpose, in such

circumstances as would indicate his

intention to stay in India for an uncertain

period;

India But does

not include


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Definition of Resident in India . Contd

13th August, 2012 4FEMA - Import and Export of Goods/ Services - by CA Gottipati MuraliKrishna; 9849992493; [email protected]

(ii) any person or body corporate registered or incorporated in India,

(iii) an office, branch or agency in India owned or controlled by a person resident

outside India,

(iv) an office, branch or agency outside India owned or controlled by a person

resident in India;


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Broad Segregation of the

Regulations

Capital Account Transactions

Current Account Transactions



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Current Account Transactions [2(j)]

means a transaction other than a capital account transaction includes,

i. payments due in connection with foreign trade, other

current business, services, and short-term banking and credit

facilities in the ordinary course of business, ii. payments due as interest on loans and as net income from

investments,

iii. remittances for living expenses of parents, spouse and

children residing abroad, and iv. expenses in connection with foreign travel, education and

medical care of parents, spouse and children;



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Capital Account Transactions [2(e)]

means a transaction which alters the assets or liabilities, including contingent liabilities,

and includes transactions referred to in sub-section (3) of

section 6;


Location Person Resident

Outside India In India

In India Outside India


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Capital Account Transactions

a. transfer or issue of any foreign security by a person residentin India;

b. transfer or issue of any security by a person resident outside

India;

c. transfer or issue of any security or foreign security by anybranch, office or agency in India of a person resident outside

India;

d. any borrowing or lending in foreign exchange in whatever

form or by whatever name called;

e. any borrowing or lending in rupees in whatever form or by

whatever name called between a person resident in India and

a person resident outside India;



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Capital Account Transactions .. Contd. f. deposits between persons resident in India and persons

resident outside India; g. export, import or holding of currency or currency notes;

h. transfer of immovable property outside India, other than

a lease not exceeding five years, by a person resident in India;

i. acquisition or transfer of immovable property in India, otherthan a lease not exceeding five years, by a person resident

outside India;

j. giving of a guarantee or surety in respect of any debt,

obligation or other liability incurred, i. by a person resident in India and owed to a person resident outside

India; or

ii. by a person resident outside India.



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Regulations at glanceRegulatio

n No.

Regulation Title Commonly referred as

1/2000 FEM (Permissible Capital Account Transactions) Regulations, 2000Capital Account Transactions

2/2000

FEM (Issue of Security in India by a Branch, Office or Agency of a

person resident outside India) Regulations, 2000IDR Regulations

3/2000 FEM (Borrowing or Lending in Foreign Exchange) Regulations, 2000ECB Regulations

4/2000 FEM (Borrowing or Lending in Rupees) Regulations, 2000

Rupee Borrowing

Regulations

5/2000 FEM (Deposit) Regulations, 2000Deposit Regulations

6/2000 FEM (Export and Import of Currency) Regulations, 2000Currency Regulations

7/2000

FEM (Acuisition and Transfer of Immovable Property Outside India)

Regulations, 2000Foreign Assets Regulations

8/2000 FEM (Guarantees) Regulations, 2000Guarantee Regulations

9/2000FEM (Realisation, Repatriation and Surrender of Foreign Exchange)Regulations, 2000

Forex Realisation Regulations

10/2000

FEM (Foreign Currency Accounts by a person Resident in India)

Regulations, 2000

Foreign Currency accounts

Regulations


All the above regulations are dated of 03/05/2000


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Regulations at glance.. Contd.Regulati

on No.

Regulation Title Commonly referred as

11/2000

FEM (Possession and Retention of Foreign Currency)

Regulations, 2000

Possession of Foreign CurrencyRegulations

12/2000 FEM (Insurance) Regulations, 2000Foreign Insurance Regulations

13/2000 FEM (Remittance of Assets) Regulations, 2000Remittance of Assets Regulations

14/2000 FEM (Manner of Receipt and Payment) Regulations, 2000Receipt and payment Regulations

20/2000FEM (Transfer or issue of security by a person resident outsideIndia) Regulations, 2000

FDI Regulations

21/2000

FEM (Acquisition and transfer of Immovable Property in India)

Regulations, 2000

Acquisition of Immovable

Properties In india

22/2000

FEM (Establishment in India of Branch or Office or other place of

business) Regulations, 2000Branch Office Regulations

23/2000 FEM (Export of Goods and Services) Regulations, 2000

Exports Regulations

24/2000

FEM (Investment in Firms or Proprietary concern in India)

Regulations, 2000

Investments into Firm or

Proprietory concerns

25/2000 FEM (Foreign Exchange Derivatives Contracts) Regulations, 2000Derivatives Regulations


All the above regulations are dated of 03/05/2000


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Regulations at glance contd.


Regulati

on No.

Date of

Issue

Regulation Title Commonly

referred as

71/2002 07/09/2002

FEM (Off-shore Banking Units)

Regulations, 2002OBU Regulations

101/2003 03/10/2003

FEM (Withdrawal of General

Permission to Overseas Corporate

Bodies) Regulations, 2003

OCB Regulations

120/2004 07/07/2004

FEM (Transfer or Issue of Any

Foreign Security)Regulations, 2004ODI regulations


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FDI

What is FDI?

Why it is important in current economic

scenario

Why a CS is supposed to be abreast with the

FDI and related procedures



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What is FIPB

FIPB is a department under the administrative

control of Ministry of Finance

It is a collection of Secretaries of various

Departments / Ministries



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Types of FDI

FDI Routes

Automatic Route

Without RBI approval

For all NRs other thanErstwhile OCBs

With RBI approval

Ertstwhile OCBinvestment in sectors

under Automatic Route

(existing before 16-09-03)

Government Approval(FIPB/ SIA)

Sectors reserved forGovt approval

For issue of Partly paidShares & warrants

The sectoral caps arebreached pursuant to

the investment



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Types of FDI contd.

Types

FDI PIS

FIIs

10% /24%/(Sectoral Cap with

approval ofMembers)

Sub-Accounts of FII(5%)

NRI/ PIO

Repatriable 5% /10%/ (24% with

approval ofMembers)

Non Repatriable(without any limit)

QFI

5% / 10%/ (24%with approval of

Members)



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Entities permitted to invest in India

Non ResidentInvestors

Automatic route

Any Non Resident(Other than citizen ofPakistan or an entity

in Pakistan andetstwhile OCBs)

NRIs resident in Nepal andBhutan or their Citizens (by

way of FE remittance

through normal bankingchannels)

With Approval

GovernmentApproval

Citizen of

Bangladesh or an

entity inBangladesh

Citizen of Pakistan

or an entity inPakistan*

Etstwhile OCB


Issue of capital againstimport of capital goods/

preliminary exp or pre-op expenses

RBI Approval

Ertstwhile OCBinvestment in

sectors underAutomatic Route



*other than defence, space and atomic energy and sectors/

activities prohibited for foreign investment


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Types of Instruments

Instruments

Capital

EquityCCPS (w.e.f

01-05-2007)ADR/GDR

Debt

CCD (w.e.f07-06-2007)

FCCB



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Investment in Firms/ Proprietory Concern/ AOP/BOI

NRI / PIO can invest on non-repatriation basisunder automatic route.

NRI / PIO can invest on repatriation basis withprior approval of RBI. RBI will decide theapplication in consultation with the GOI

Amount is invested by inward remittance or outof NRE/FCNR(B)/NRO account maintained withAD/ Authorized banks.

Other than NRI / PIO can invest with priorapproval of RBI. RBI will decide the application in

consultation with the GOI The entity should not engage any prohibited

activity



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Investment in LLP

FDI will be allowed, through the Government approval route

in sectors/activities where 100% FDI is allowed, through the

automatic route and there are no FDI-linked performanceconditions

Indian company making investment in LLP (both should be

eligible entities)

LLPs with FDI will not be eligible to make any downstreaminvestments

Only by way of cash consideration

Investment in LLPs by FIIs and FVCIs will not be permitted.

LLPs not be permitted to avail ECBs

Conversion of a company with FDI, into an LLP, with the prior

approval of FIPB/Government



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Foreign Investment Prohibited Sectors

Atomic Energy

Lottery Business including Government / private lottery, online lotteries

etc. Gambling and Betting including casinos etc.

Business of chit fund

Nidhi Company

Trading in Transferable Development Rights (TDRs)

Activities/sector not opened to private sector investment

Agriculture (excluding Floriculture, Horticulture, Development of seeds,

Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms

etc. under controlled conditions and services related to agro and allied

sectors) and Plantations (Other than Tea Plantations)



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Foreign InvestmentProhibited Sectors contd

Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or

of tobacco or of tobacco substitutes.

Activities / sectors not opened to private sector investment includingAtomic Energy and Railway Transport (other than Mass Rapid Transport

Systems).

foreign investment in any form, foreign technology collaboration in any

form including licensing for franchise, trademark, brand name,

management contract is also completely prohibited for Lottery Businessand Gambling and Betting activities.

Foreign investment in Trusts other than investment by SEBI registered

FVCIs in domestic VCF



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Allotment of sharesFlow

Remittance

The investor remits the amount into the Company in eligible currency

Intimation toRBI

The company shall intimate RBI through AD within 30 days of remittance

The intimation to be made in Annexure II of Circular 44 dated30/05/2008. The said annexure has been attached as Annexure 5 toCircular 1/2013 and Annexure 6 to Master Circular dated 01/07/2013

KYC

The company needs to facilitate the AD to obtain KYC information of theremitter from their counterpart bank

The KYC format is prescribed vide Annexure III of Circular 44 dated30/05/2008. The said annexure has been attached as Annexure 6 toCircular 1/2013 and Annexure 7 to Master Circular dated 01/07/2013

UIN

RBI upon receipt of the intimation allots Unique Identification Number(UIN) for each such remittance and intimates the company

This UIN has to be quoted at the time of filing the FC-GPR / refund of themoney



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Allotment of sharesFlow

Allotment/Refund

The company shall allot Shares / CCPS / CCD within 180 days of theremittance failing which the money shall be refunded (w.e.f. 29/11/2007)

Valuation ofShares

In case of listed company the valuation >= the value decided under SEBIregulations

In case of Unlisted Companies, the valuation has to be done as per DCFmethod (w.e.f. 07/04/2010)

Even for issue of convertible instruments the price/conversion formula

has to be done upfront. The conversion price cannot be changeddownwards at the time of conversion

Form FC-GPR

The company after allotting the shares/ CCPS/CCD shall file form FC-GPRwith AD who have received the remittance

The intimation to be made in Annexure I (Part A) of Circular 44 dated30/05/2008. The said annexure has been attached as Annexure 1 to

Circular 1/2013 and Annexure 8 to Master Circular dated 01/07/2013

Intimationfrom RBI

Upon receipt of the Form FC-GPR RBI after scrutiny of the form, allotsUIN for FC-GPR which shall be used at the time repatriation by theinvestor



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Transfer of Shares / CCPS/ CCD

Transfer

NRI / PIO to NRI/ PIO

NR to NR (includingNRI / PIO)

Sale/ Gift

other than FinancialServices Sector

Automatic Route

The company is inspecified Financial

Services Sector

Govt Approval

NR to R

Gift

Automatic Route

R to NR

Gift

RBI Approval (Needsto comply with

conditions specified)

Sale of Shares (Otherthan specifiedcategories of

industries)

Automatic Route

Sale of Shares(specified categories

of industries)

RBI Approval



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Transfer of sharesFlow

Sale

The seller and buyer enters into the agreement / arrangement to buy /sell the shares

Remittance

The Buyer makes the payment to the seller (Resident Seller / Non-Resident Seller)

Intimation toRBI

The resident party shall intimate to RBI through AD within 60 days ofreceipt / payment of consideration. The onus of submission is on theparty resident in India

The intimation to be made in Form FC-TRS. The said form has beenattached as Annexure 8 to Circular 1/2013 and Annexure 9-I to MasterCircular dated 01/07/2013

KYC

The company needs to facilitate the AD to obtain KYC information of theforeign counter party from their counterpart bank

The KYC format is prescribed vide Annexure III of Circular 44 dated30/05/2008. The said annexure has been attached as Annexure 6 toCircular 1/2013 and Annexure 9-II to Master Circular dated 01/07/2013



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Transfer of sharesFlow

Endorsementby AD

Upon receipt of Form FC-TRS (in Quadruplicate), the ADremitting or receiving the consideration has to endorse

on Form FC-TRS

Noting bythe Company

The company only upon receipt of the endorsed FC-TRSalong with relevant share transfer deeds / sharecertificate and any other relevant document, can recordthe transfer in its Register of Members

Valuation ofShares

In case of listed company the valuation >= the valuedecided under SEBI regulations

In case of Unlisted Companies, the valuation has to bedone as per DCF method (w.e.f. 07/04/2010)



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Transfer by R to NR as Gift under RBI approval route

The proposed transferee (donee) is eligible to hold such capital

instruments

The gift does not exceed 5 % of the PUCof the Indian company/each seriesof debentures/each mutual fund scheme.

The applicable sectoral cap limit in the Indian company is not breached

The transferor (donor) and the proposed transferee (donee) are close

relatives as defined in Section 6 of the Companies Act, 1956

The value of capital instruments to be transferred together with anycapital instruments already transferred by the transferor, as gift, to any

person residing outside India does not exceed the rupee equivalent of USD

50,000 during the calendar year.

Such other conditions as stipulated by Reserve Bank in public interest

from time to time



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Conversion of ECB/Lumpsum Fee/Royalty into Equity

The activity of the company is covered under the Automatic Route for FDI

or the company has obtained Government approval for foreign equity in

the company The foreign equity after conversion of ECB into equity is within the sectoral

cap, if any

Pricing of shares shall be as prescribed

Compliance with the requirements prescribed under any other statute and

regulation in force The conversion facility is available for ECBs availed under the Automatic or

Government Route and is applicable to ECBs, due for payment or not, as

well as secured/unsecured loans availed from non-resident collaborators.



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Issue of securitiesother cases

issue of shares/preference shares against lump sum technical know-how

fee, royalty, under automatic route or SIA/FIPB route, subject to pricing

guidelines and compliance with applicable tax laws Issue of Shares on Rights basis

in the case of shares of a company listed on a recognized stock exchange

in India, at a price as determined by the company in compliance with SEBI

(ICDR) Regulations, 2009

in the case of shares of a company not listed on a recognized stockexchange in India, at a price which is not less than the price at which the

offer on right basis is made to resident shareholders.

rights share to such erstwhile OCBs will have to take specific prior

permission from RBI. As such, entitlement of rights share is not

automatically available to erstwhile OCBs. Existing non-resident shareholders are allowed to apply for issue of

additional shares/ CCPS / CCD over and above their rights share

entitlements subject to the sectoral caps.



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Issue of securitiesother cases contd

Units in Special Economic Zones (SEZs) are permitted to issue equity

shares to non-residents against import of capital goods subject to the

valuation done by a Committee consisting of Development Commissionerand the appropriate Customs officials.

Share Swap: Approval of the Foreign Investment Promotion Board (FIPB) is

a prerequisite for investment by swap of shares.



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Pledge of Shares

A person being a promoter of a company registered in India (borrowing

company), which has raised ECB , may pledge the shares of the borrowing

company or that of its associate resident companies for the purpose ofsecuring the ECB raised by the borrowing company, provided that a no

objection for the same is obtained from a bank which is an authorised

dealer.

The authorized dealer, shall issue the no objection for such a pledge after

having satisfied itself that the external commercial borrowing is in linewith the extant FEMA regulations for ECBs and that :

i) the loan agreement has been signed by both the lender and the

borrower,

ii) there exists a security clause in the Loan Agreement requiring the

borrower to create charge on financial securities, and iii) the borrower has obtained Loan Registration Number (LRN) from the

Reserve Bank of India :



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Pledge of Sharescontd.

conditions :

i) the period of such pledge shall be co-terminus with the maturity of the

underlying external commercial borrowing; ii) in case of invocation of pledge, transfer shall be in accordance with the

extant FDI Policy and directions issued by the Reserve Bank;

iii) the Statutory Auditor has certified that the borrowing company will

utilize / has utilized the proceeds of the external commercial borrowing

for the permitted enduse/s only



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Restriction on Various Current Acct Transactions

Particulars Amount exceeding

(USD)

Private visits to any country (except Nepal and Bhutan) 10,000Gift remittances by persons other than Resident Individual

(per FY, per remitter)

5,000

Donation by persons other than Resident Individual (per FY,

per remitter)

5,000

Person going abroad for employment 1,00,000Emigration to foreign country 1,00,000 or amount

prescribed by the Host

Country)

Remittance of Salary Income to Close relatives residing

abroad

Net Salary

Business Travel 25,000

Medical Treatment abroad Amount Prescribed by

Doctor in India,

hospital/ doctor Abroad



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Restriction on Various Current Acct Transactions

Particulars Amount exceeding

(USD)

Studies Abroad 1,00,000 per academicyear or the amount

estimated by the inst.

Commission to a Foreign Agent for sale of residential or

commercial flats in India

25,000 or 5% of the

inward remittance

Project Consultancy Services to a Foreign Consultant for

Infrastructure Projects In India

10 Million Per Project

Project Consultancy Services to a Foreign Consultant for

Other Projects In India

1 Million Per Project

Reimbursement of Pre-Incorporation expenses 1,00,000 or 5% of the

inward remittance



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Compliances Calendar under Various regulations

Particulars Relevant Regulation Due Date

Filing of FIRC intimation

along with KYC

FDI Regulations With in 30 days of Receipt of

FundsAllotment of Shares FDI Regulations Within 180 days of Receipt of

funds

Filing of FC-GPR FDI Regulations Within 30 days of Allotment

Filing of Annual Asset

Liability Statement to RBI

FDI Regulations 15th of July from end of the

relevant FYCopy of Resolution passed

by the company for

enhancement of limits

FDI Regulations Prior Intimation

Filing of Form 83 ECB Regulations With in 7 days of signing of

agreementFiling of Form ECB-2 ECB Regulations Within 7 working days of end

of the relevant month

Making of Payment for

Imports

Current Account Rules Within 6 months of Import

(Normal Period)



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Making of Payment for

Imports

ECB Regulations 6 months but 36 months ECB

Filing of Form IPI by a

person other than NRI/PIO

Acquisition of

Immovable Properties

In india

Within 90 days of acquisition

Obtaining RBI approval for

carrying operations in

India

Branch Office

Regulations

Before commencing

operations in India

Register as Foreign

Company in India

Branch Office

Regulations

Before commencing

operations in India

Submission of AAC to RBI/

IT authorities

Branch Office

Regulations

Within 6 months of due date

for closing of account as per

Host Country Regulations

Submission of information

to Police authorities

Branch Office

Regulations

Within 5 working days of

becoming functional



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Realization of Dues of

Exports

Exports Regulations SEZ/EOU/ Status Holders etc.,

- 1 yearOthers 9 months (upto

30/09/2013)

Submission of Intimation

of overdue bills to AD

Exports Regulations Within 30 days from end of

the FY

Submission of Form ODI

under Automatic/

Approval Route

ODI Regulations At the time of making

remittance

Submission of Form ODI

for each change in the

step down subsidiaries

ODI Regulations Within 30 days of decision

taken by the Competent

Authority

Submission of details of

Share certificates issued

by JV/WOS

ODI Regulations Within 6 months of

remittance/ capitalisation of

exports

Submission of APR ODI Regulations Within 60 days of closure/ due

date of closure of financials



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Penalties

If the amount involved is quantifiable upto 3 times of the amount involved and

for continuing default Upto Rs. 5,000 per day

In case of the companies, the following persons are also liable to punishment

Person In-Charge of the operations

Person with whose consent or Connivance the offense is taken place

Director or Secretary or Manager or other officer of the company in case of negligence

is attributable to him



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Compounding of offenses

The compounding application can be submitted to the RBI for the cases other than

the Cases of contravention having a money-laundering, national and security

concern involving serious infringements of the regulatory framework including

cases where application for compounding has not been filed within the stipulated

period in the memorandum issued by the Reserve Bank may be referred to

Directorate of Enforcement for further investigation and necessary action under

Section 37 of the Act or to the Anti Money Laundering Authority instituted under

Prevention of Money Laundering Act, 2002 or to any other agencies as deemed fit.

Contraventions related to any transaction without proper approval or permissionfrom the concerned Government or any Statutory Authority as the case may be

under the relevant laws/regulations as envisaged under FEMA, would not be

compounded unless the required approval is obtained from the concerned

authorities.

The compounding application can be made in the format prescribed as per

A.P.(DIR Series) Circular No.31 dated February 1, 2005 (in duplicate). ApplicationFee Rs. 5,000/-



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Compounding Powers of RBI

Amount (INR) Relevant Officer

10 Lakhs and 40 Lakhs and 100 Lakhs CGM


d f


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Compounding Powers of ED

Amount (INR) Relevant Officer

5 Lakhs and 10 Lakhs and 50 Lakhs and 100 Lakhs SD with D


U f l W b it Li k


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Useful Website Links1) RBI

www.rbi.org.in

2) DIPP

www.dipp.nic.in

3) ED

http://www.enforcementdirectorate.gov.in/4) FIPB

www.fipb.india.com

5) Ministry of Finance

www.finmin.nic.in

6) Ministry of Home Affairs

www.mha.nic.in

http://www.rbi.org.in/http://www.dipp.nic.in/http://www.enforcementdirectorate.gov.in/http://www.fipb.india.com/http://www.finmin.nic.in/http://www.mha.nic.in/http://www.mha.nic.in/http://www.finmin.nic.in/http://www.fipb.india.com/http://www.enforcementdirectorate.gov.in/http://www.dipp.nic.in/http://www.rbi.org.in/


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Questions



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Thank you



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G. Murali Krishna M.com., A.C.A, A.C.S

M/s. SBS and Company

Chartered Accountants

#6-3-900/6-9, Flat No.104,

Veeru Castle, Durganagar Colony,

Panjagutta, Hyderabad-500082.

Mobile No. 9849992493

Ph No. 040-64584494/ 40183366

E-mail: [email protected]

FEMA-Compliances Seminar 06072013

Documents

Transcript of FEMA-Compliances Seminar 06072013