Guidance Note on Filing the Foreign Liabilities and Assets (FLA) Return

Introduction

The Foreign Liabilities and Assets (FLA) Return is a pivotal regulatory requirement mandated by the Reserve Bank of India (RBI) under the provisions of the Foreign Exchange Management Act, 1999 (FEMA). This annual filing is imperative for Indian entities engaged in Foreign Direct Investment (FDI) or Overseas Direct Investment (ODI). It serves the crucial function of capturing detailed information on foreign liabilities and assets as reflected in the financial statements of these entities.

Applicability

Entities Obligated to File FLA Return:

• Companies: Incorporated under the Companies Act, 2013.
• Limited Liability Partnerships (LLPs): Established under the LLP Act, 2008.
• Other Entities: Including SEBI-registered Alternative Investment Funds (AIFs), Partnership Firms, and Public-Private Partnerships (PPPs) involved in FDI or ODI activities.

Non-Applicability

Exemptions from FLA Return Filing:

• The entity did not receive FDI or conduct ODI during the current or preceding financial years.
• Foreign investments were limited to share application money without any outstanding FDI or ODI by the end of March.
• Non-resident shareholders sold shares to residents without any remaining foreign investments.

Due Date and Penalties

Due Date for FLA Return Submission:

• July 15th: Annual deadline for submission. In cases where audited financials are unavailable by this date, unaudited or provisional figures may be filed. Revised returns based on audited figures must be submitted by September 30th.

Penalties for Late Filing under FEMA:

• Late Submission Fee (LSF): INR 7,500 for filings submitted after July 15th but before any enforcement actions.
• Monetary Penalty: Up to 300% of the involved amount or a minimum of INR 2 Lakh if the amount cannot be quantified.
• Daily Penalty: INR 5,000 per day for continued non-compliance beyond initial detection.

Detailed Information Required

The FLA Return comprises five comprehensive sections, each crucial for a thorough assessment of foreign liabilities and assets:

Section I – Identification Particulars

• Prefilled Information: Includes company name, PAN, CIN, and contact details.
• Contact Details: Provide comprehensive information on the contact person, including name, phone number, mobile number, email, designation, and website, along with the account closing date.
• NIC Code: Utilize the National Industrial Classification (NIC) -2008 codes for industry specification. If engaged in multiple activities, select the primary revenue-generating activity.
• Company Specifics: Indicate if the company is an Asset Management Company, involved in technical foreign collaborations, or conducted business activities in the last financial year. Specify the nature of FDI involvement.

Section II – Financial Details

• Capital: Disclose the total paid-up capital, distinguishing between participating and non-participating share capital.
• Profit and Loss Account: Detail profit/loss before and after tax, dividends issued, and any applicable taxes on dividends.
• Reserves & Surplus: Report reserves and surplus figures separately from accumulated profit/loss balances.
• Sales and Purchases: Include domestic and foreign sales and purchases of goods and services.
• Employee Information: State the number of employees on the payroll.

Section III – Foreign Liabilities

• FDI in India (10% or more equity participation): Provide details on foreign direct investors, initial FDI receipt date, investor specifics, equity holding percentages, and liabilities to direct investors, including any disinvestments.
• FDI in India (less than 10% equity holding): Similar details applicable to entities with less than 10% equity holding by foreign investors.
• Portfolio Investment in India: Specify equity and debt securities held by non-resident investors, excluding FDI.
• Other Liabilities: Report financial liabilities with foreign unrelated parties, excluding domestic liabilities even if in foreign currency.

Section IV – Foreign Assets

• ODI (10% or more): Detail the number of Direct Investment Enterprises (DIE) abroad, investment specifics, equity holdings, sales, purchases, employee numbers, and claims on DIE, including disinvestments.
• ODI (less than 10% equity holding): Provide similar information for investments where the Indian entity holds less than 10% equity in the DIE.
• Debt Securities and Portfolio Investment Abroad: Include investments in money market instruments and bonds under portfolio investment abroad.
• Other Assets: Report financial assets with foreign unrelated parties, excluding domestic assets.

Section V – Variation Report

• Auto-generated Report: This section compares the current year’s data with the previous year, highlighting variations.

Filing Procedure

Since June 2019, the FLA Return must be filed online through the FLAIR portal. The process involves meticulous steps to ensure accurate submission:

Setting Up a Business User in FLAIR Portal

1. Access the FLAIR Portal: Visit the official FLAIR portal website.
2. Register as a New Entity User: Complete the “Registration Form for New Entity User” to initiate registration.
3. Provide Entity Details: Furnish comprehensive entity details, including Corporate Identification Number (CIN)/Registration Number, Company Name, PAN Number, registered address with PIN, and contact details. Confirm any changes to the CIN/Registration Number or company name during the last financial year ending in March.
4. Authorized Person’s Information: Input details of the authorized person, including name, PAN number, and contact information.
5. Upload Required Documents: Attach a verification letter, an authority letter, and copies of the PAN cards for both the entity and the authorized person.

Preparing and Submitting the FLA Return

1. Create and Verify Business User: Upon registration and receipt of the RBI-issued password via email, log in to initiate preparation of the FLA return, structured into five sections for comprehensive reporting.
2. Review and Submit: After completing the FLA return, download and thoroughly review it for accuracy before submitting it online through the FLAIR portal.

After Submission

• Acknowledgment: Upon successful submission, the FLAIR portal will generate an acknowledgment confirming processing of the FLA return for the applicable year.

Key Recommendations and Cautionary Points

• Data Accuracy: Scrutinize all data entries meticulously to prevent errors and discrepancies.
• Timely Compliance: Adhere strictly to filing deadlines to avoid penalties and ensure regulatory compliance.
• Documentation: Maintain thorough documentation of all foreign transactions and investments for substantiation during filing.
• Professional Assistance: Consider engaging professional services to navigate complex regulatory requirements and ensure accuracy in filing.

Conclusion

This guidance aims to equip entities with comprehensive insights and procedural clarity necessary for successful FLA Return filing. Diligence in preparation, adherence to regulatory timelines, and meticulous attention to detail are crucial for ensuring compliance with RBI guidelines and FEMA provisions, thereby safeguarding against penalties and fostering regulatory adherence.