The compliances involved with RBI (Reserve Bank of India) and FEMA (Foreign Exchange Management Act), 1999 is a cumbersome process which involved offline filing of forms and running from one desk to the other eating up a lot of precious time. But the good news is, now vide RBI Circular No. 40 dated 1^st February, 2016; RBI has made it mandatory to report any transactions and filing of forms online in respect of issue and transfer of shares from an Indian Entity to outside India, with effect from 8^th February, 2016. Click here to see the notification.

It has been noticed many a times where two entities, one being non-resident, and the other being resident work together and transfer or issue of shares takes place. The resident companies carry out the transaction without following the reporting process and as a result they seem to fall in a wrong foot leaving no time or very little time to comply with FEMA laws leading to compounding of offences, and heavy penalties.

Decoding RBI and FEMA Compliances in respect of transfer and issue of shares from an Indian Entity to outside India

Here, we bring you out in short what are the necessary formalities that are required to be complied when dealing in shares with a non-resident.

The first important point to note in such a transaction is that all the reporting and compliance guidelines are to be fulfilled by the resident transferor or transferee, as the case may be.

Transfer of Shares: Form FC-TRS Decoded

Whenever any transfer of shares takes place between a resident and a non-resident, the resident individual or the entity has to report the transaction to RBI by filing of Form FC-TRS online at https://www.ebiz.gov.in. The reporting of Form FC-TRS should be done within a period of 60 (Sixty) days from the date of receiving the money.

The steps involved in filing of Form FC-TRS are briefed below:

a) Download the Pre-filled Form FC-TRS from https://www.ebiz.gov.in

b) Fill the required details of the Investee Company

     (i) Name of the Company

     (ii) PAN of the Company

     (iii) Address of the Company

     (iv) Telephone Number of the Company

     (v) Fax Number of the Company

     (vi) Email ID of the Company

     (vii) Main Business Activity of the Company as per the NIC Code 2008 series

c) Enter the Details of the Buyer

     (i) Name of the Buyer

     (ii) Address of the Buyer

     (iii) Telephone Number of the Buyer

     (iv) Email ID of the Buyer

     (v) Nature of the Investing Entity

     (vi) Date and Place of Incorporation of the Investing Entity

d) Details of the Seller

     (i) Address of the Seller

     (ii) Telephone Number of the Seller

     (iii) Email of the Seller

     (iv) Name of the Disinvesting Entity

e) Enter the details of the Foreign Investment in the Company.

f) Mandatory Attachments

     (i) Declaration by the Non-resident Buyer

     (ii) KYC Form in respect of Non-resident Investor

     (iii) Copy of FIRC (To be procured from Bank receiving the remittance)

     (iv) Valuation Report by a Chartered Accountant or SEBI registered Merchant Banker

g) Once the form is completed in all respects without any error; the Name, Designation, Place, and Digital Signature of the Declarant is to be attached.

h) The Form FC-TRS should now be saved and it should be renamed as xyz_IFSC Code of the Branch which received the money.

After following all the above steps the form is now ready to be uploaded on the Ebiz portal. Upon uploading the Form an “Application Number” is generated instantly and it can be used to keep a track of the status of the Form.

It has to be well kept in mind that merely uploading the Form does not mean that all the compliances have been fulfilled, the compliance shall deem to be complete only after approval by the Reserve Bank of India (RBI).

Issue of Shares-Form FC-GPR Decoded

The Form FC-GPR comes into use whenever there is new issue of shares. The onus to submit the form or comply with the laws is on the resident entity.

Any Company or Organization receiving foreign investment must report the transaction to the RBI within a stipulated timeline. Similar to the filing of FC-TRS which is filed online, the Form FC-GPR is also required to be filed online.

The timeline is briefly described below:

a) Foreign funds received

b) Within 30 days of receiving the money file ARF (Advance Remittance Form) with the RBI

c) RBI will issue UIN (Unique Identification Number) after submission of ARF

d) Within 180 days from the date of receiving the money, allot the shares

e) File FC-GPR within 30 days from the date of allocation of shares.

There are some pre-requisites in filing of Form FC-GPR, the applicant needs to obtain the following:

i) UIN (Unique Identification Number) from RBI by reporting ARF

ii) KYC Report for the beneficiary if the beneficiary and remitter are different entities

iii) Certificate from SEBI registered Merchant Banker / Chartered Accountant indicating the manner of arriving at the price of shares issued to the persons resident outside India

iv) Board Resolution for allotment of shares

v) CS Certificate to the effect that all the laws pursuant to issue of shares have been complied

vi) Declaration from the Non-Resident Buyer to the effect that it is eligible to acquire such shares according to the FEMA and RBI guidelines under Direct Route or Approval Route, as the case may be.

Once all the above documents are obtained, the applicant shall duly fill the Form FC-GPR and complete it in all respects without any error, attach the Digital Signature of the applicant and upload the form online at https://www.ebiz.gov.in. In this case also, it is to be noted that merely filing the Form FC-GPR does not discharge an entity of its duties in regard to compliance of the relevant laws, the same shall be considered complete only after it is approved by the RBI.

Conclusion

Considering the scope of work is so wide and compliance of the same is a difficult process, it is not easy to comply with all the laws correctly and within time, and therefore it is always advisable to seek the help of experts to manage such compliances.

In case of any assistance just drop in a mail to info@taxmantra.com or write your comments below.