Compliance is the key to sustainable growth in international business. Stay informed, stay ahead.
When Indian Individual Residents or Indian Companies incorporate entities in jurisdictions such as Dubai, the USA, Singapore, or other overseas locations, it is imperative to comply with specific Indian laws, rules, and regulations. These mandatory compliances are not only a legal obligation but also crucial for maintaining financial transparency and avoiding penalties. Ensuring that all required procedures are followed will help safeguard your investments and prevent potential non-compliance notices from the Reserve Bank of India (RBI) and authorized dealer banks in India.
In this blog, we outline the essential compliance steps that must be taken after incorporating a company overseas, helping you navigate the complexities of cross-border business operations.
1. Reporting of Incorporation (Form FC) with Your Indian Bank
Key Requirement:
Once you have incorporated an entity in an overseas jurisdiction, it is mandatory to report this incorporation to your Indian bank within 30 days using Form FC.
Procedure & Nitty-Gritty:
- Documentation: You will need to gather and submit documents such as the Certificate of Incorporation of the overseas entity, relevant board resolutions, and detailed investment information.
- Submission: Submit Form FC along with the required documentation to your authorized dealer bank. This report includes critical information like the type of investment, the jurisdiction of the entity, and the percentage of shareholding.
- Importance: Timely submission of Form FC is essential for the proper recording of foreign investments under the Foreign Exchange Management Act (FEMA). This step is the foundation of your compliance journey and helps in establishing a transparent investment record.
Analytical Rationale:
This initial reporting is crucial as it allows the RBI to monitor foreign investments by Indian entities, ensuring compliance with FEMA guidelines. It also facilitates the tracking of cross-border financial transactions, ensuring that your overseas ventures are aligned with Indian regulatory expectations.
2. Annual Foreign Liabilities and Assets (FLA) Return
Key Requirement:
Entities that have established a branch or subsidiary overseas must file an Annual Foreign Liabilities and Assets (FLA) Return. Note that individual shareholders in an overseas company are not required to submit this return.
Important Update:
For the Financial Year 2023-24, the deadline for filing the FLA Return has been extended to 31st July 2024.
Standard Due Dates:
- Initial Submission: The FLA Return is typically due by 15th July every year.
- Revisions: The return can be revised based on audited financial statements until 30th September of the same year.
Procedure & Nitty-Gritty:
- Filing: The FLA Return must be filed electronically through the RBI’s online portal or via email, depending on the guidelines provided by the RBI.
- Data Required: The return should include detailed information on foreign liabilities (such as investments received) and foreign assets (such as investments made abroad).
- Revisions: You can revise the FLA Return based on audited financials to ensure accuracy, particularly if initial submissions were based on unaudited figures.
Analytical Rationale:
The FLA Return is vital for the RBI to assess India’s international investment position and to monitor foreign exchange flows. Accurate and timely filing of this return ensures compliance with global financial standards and reflects the transparency of your overseas operations.
3. Annual Performance Report (APR)
Key Requirement:
The Annual Performance Report (APR) must be filed by 31st December every year by all Indian entities with overseas branches or subsidiaries, including individual shareholders.
Procedure & Nitty-Gritty:
- Contents: The APR should detail the performance of the overseas entity, including key metrics such as business activities, financial results, and strategic outlook.
- Submission: The APR is submitted to the RBI through the authorized dealer bank, often accompanied by relevant financial documents and additional disclosures.
- Applicability: Unlike the FLA Return, the APR is required from all Indian entities involved in overseas investments, ensuring comprehensive reporting.
Analytical Rationale:
Filing the APR is crucial for providing the RBI with a detailed review of the overseas entity’s performance. This report helps the RBI monitor the impact of foreign investments on the Indian economy and ensures that Indian entities' international ventures are contributing positively to the country’s economic landscape.
4. Annual Audit Report Along with APR
Key Requirement:
An Annual Audit Report of the overseas entity must be filed alongside the Annual Performance Report (APR). The requirements for this audit vary based on the type of shareholding.
- For Parent-Branch or Holding-Subsidiary Relationships:
- The audit must be conducted by an auditor in the overseas jurisdiction where the entity is based.
- For Individual Shareholding in an Overseas Entity:
- The audit can be conducted either by an overseas auditor or by an Indian Chartered Accountant (CA), depending on the bank’s acceptance policies.
Procedure & Nitty-Gritty:
- Audit Compliance: Ensure that the audit is conducted following the local laws of the overseas jurisdiction. If opting for an Indian CA, confirm with your bank that such reports are acceptable.
- Filing with APR: The audit report should be submitted along with the APR, ensuring that all financial data provided is verified and compliant with both Indian and international standards.
- Compliance Assurance: This requirement ensures that all financial disclosures are transparent and help maintain the credibility of your overseas business operations.
Analytical Rationale:
The submission of the annual audit report alongside the APR ensures that your overseas investments are transparent and compliant with Indian and international regulations. This practice not only mitigates financial risks but also enhances the credibility and reliability of your financial reporting.
Conclusion
Staying compliant with these regulations is essential for maintaining a good standing with Indian regulatory authorities. Non-compliance can lead to significant penalties and disrupt your overseas business operations. By adhering to the procedures outlined above, you can safeguard your overseas ventures and contribute positively to India’s global economic footprint. Regular consultations with your authorized dealer bank and legal advisors are recommended to ensure that all reporting requirements are met on time.
At Sandeep Ahuja & Co, we are committed to helping you navigate these complex compliance requirements, ensuring that your international investments are secure and compliant. Should you need further assistance, please do not hesitate to reach out to our team of experts
