An Insight to FLA Returns under Foreign Exchange Management Act, 1999

An Insight to FLA Returns under Foreign Exchange Management Act, 1999

Introduction:

The Foreign Exchange Management Act, 1999 (FEMA) is an Act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. It was passed in the winter session of Parliament in 1999, replacing the Foreign Exchange Regulation Act (FERA). Reserve Bank of India (‘RBI’), which is the Apex Bank, governs FEMA and Regulations made there under.

In India, Foreign Direct Investment (‘FDI’) inflows have been witnessing increase every year. Similarly, Indian companies are going global by investing abroad in the recent past.

The importance of FEMA compliances is indispensable considering the fact there are penal consequences in case of non-compliances. The purpose of this article is to inculcate basic knowledge on Annual Compliances specified under FEMA for Indian Companies having FDI and for Indian entities having investments in overseas Joint Venture (‘JV’) and/or Wholly Owned Subsidiary (‘WOS’). The said compliances are detailed hereunder:

What is Annual Return on Foreign Liabilities and Assets?

In order to capture the statistics relating to FDI in a more comprehensive manner as also to align it with international best practices, the RBI has introduced the requirement to file Annual Return on Foreign Liabilities and Assets (‘FLA Return’).

Annual return on Foreign Liabilities and Assets has been notified under FEMA 1999. Return to be filed under A.P. (DIR Series) Circular No.145 dated June 18, 2014 and submitted to the Department of Statistics and Information Management, RBI, Mumbai.

Investment made by Non Resident Indians (‘NRI’) on non-repatriation basis as per schedule 4 of the FDI Regulations is not considered as FDI and hence, the same may be considered as domestic investment in the FLA Return.

If the Indian company does not have any outstanding investment in respect of FDI and as on end of the reporting year, the Company need not submit the FLA Return. Similarly, if the Indian company has not ‘received any fresh FDI and in the latest year but the company has outstanding FDI and then that company is still required to submit the FLA Return every year by 15 July.

Partnership firms, Branches or Trustees which are having FDI as on end of the reporting year, then the same are also required to file excel based FLA Return. These persons should send a request mail to get a dummy CIN number which will enable them to file the Excel based FLA Return. If any entity has already got the dummy CIN number from the previous year, they should use the same CIN number in the subsequent years also.

Applicability:

 It is required to be submitted mandatorily by all the India resident companies which have received FDI and/ or made ODI in any of the previous year(s), including current year i.e. who holds foreign assets or liabilities in their financial statements as on 31 March.

Due Date: 

FLA Return is mandatory under FEMA 1999 and companies are required to submit the same based on audited/ unaudited account on or before July 15 every year through official email id of any authorized person of company like CFO, Director, and Company Secretary at fla@rbi.org.in

Where return is filed with unaudited/provision balance sheet than subsequently, once the accounts gets audited and there are revisions from the provisional information submitted by the Indian Company, then the Indian

Company is supposed to submit the revised FLA return based on audited accounts by end of September.

Format:

The FLA Return has to be submitted in excel based format, which has inbuilt checks and validations. The Indian company which is under an obligation to file the FLA Return needs to download Excels based utility from the RBI website. After filling in the requisite details, the Indian Company can file the FLA Return by e-mailing the same to the RBI at fla@rbi.org.in

The latest format of FLA Return is available on RBI’s web site at the following link: https://www.rbi.org.in/Scripts/BS_ViewFemaForms.aspx

Non-compliance:

Non-filing of FLA Return before due date will be treated as a violation of FEMA and penalty clause may be invoked for violation of FEMA. Hence, these compliances need to be adhered in a timely manner.

Disclaimer:

The information contained in this write up is to provide a general guidance to the intended user. The information should not be used as a substitute for specific consultations. Authors recommend that professional advice is sought before taking any action on specific issues.

This article has been shared by Harsha Ramnani. She can be reached at harsha.ramnani@sba-ca.com