External Commercial Borrowings are commercial loans that are utilized by Indian Companies. Thes...
Foreign Investment in India is allowed for Wholly Owned Subsidiaries, Joint Ventures, and entities. The investment can be in securities of an Indian Company. The company can either be a listed entity or an unlisted entity. The Reserve Bank of India (RBI) is the central regulatory authority that makes rules for the regulation of foreign exchange in the country. This article describes FC-GPR Compliance for Non-Resident Investments.
Read our article:Foreign Investment in India and its Regulatory Framework
The RBI and the Government of India (GOI) have enacted the foreign exchange management act (FEMA 1999). This law regulates and governs foreign exchange transactions within the country. When a foreign entity or an NRI invests in the Indian company, then compliance has to be followed. One such compliance carried out by the Indian company is called as FC-GPR Compliance. FC-GPR compliance is mandatory for all transactions involving foreign direct investment from a foreign company or non-resident individual.
FC-GPR compliance must be under the rules of Foreign Exchange Management (Transfer or Issue of Security by a person resident outside India), 2000.
When a foreign company or a non-resident wants to invest in an Indian company, then FDI compliance must be maintained and reported by the Indian Company. One of the crucial compliance which has to be followed is FC-GPR compliance.
Apart from the FC-GPR compliance, the Indian company also has to adhere to the following conditions:
An Indian company receiving foreign investment in any other form would be categorized as External Commercial Borrowings. There is a separate framework for ECB under the RBI.
Read our article:What are External Commercial Borrowing Regulations?
FC-GPR compliance is the abbreviation for Foreign Currency Gross Provisional Return. FC-GPR Compliance is one of the mandatory compliances introduced by the RBI. This was introduced due to the complexities of maintaining different investments made by foreign companies, wholly-owned subsidiaries, and non-resident Indians. FC-GPR compliance was introduced in the year 2007 by the RBI. Due to discussions between interested parties and market participants, the FC-GPR compliance was amended in 2008. An Indian company has to compulsorily follow compliance under this system.
There is a standard format for FC-GPR compliance. However, the forms used by a foreign company investing in an Indian company are different from the Non-resident FC-GPR Compliance form. Therefore an Indian company receiving foreign investment must make sure the proper form is used for reporting compliances under foreign direct investment.
In 2018, the RBI came up with a consultation paper on the user manual for the Single Master Form (SMF). All compliances on foreign exchange have to be reported under the SMF. This replaces the previous system of separate compliance carried out on different forms.
An Indian company that receives foreign direct investment for shares or securities to a foreign investor or non-resident Indian has to report FC-GPR compliance under the SMF through the FIRMS website.
FC-GPR compliance is required when an Indian company issues securities to a foreign wholly-owned subsidiary, joint venture, or non-resident Indian. This compliance is compulsory for all companies receiving foreign direct investment. FC-GPR form is required when an Indian company issues securities to a Non-resident investor.
Apart from filing the FC-GPR form, the company has to also follow compliance under the Companies Act, 2013.
A non-resident Indian like a company is allowed to invest in companies in India. However, the investment must be according to the rules prescribed by the RBI. A Non-resident Indian is allowed to open a bank account in India. A Non-resident Indian can open the following bank accounts:
The above accounts can be used for transactions that happen locally within the country. An individual is allowed to open the above accounts. The transactions in the NRO account must be conducted in Indian rupees. Inward remittances are allowed through this account.
Apart from this, the NRI can use this account to carry out legitimate transfers. Usually, the NRO account is used for this purpose. Any form of payment can also occur through this account. Any form of remittance of current income can take place through this account.
The balances present in this account can only be repatriated to the home country if the NRI or the Persons of Indian Origin control the account. The amount which can be repatriated is limited up to USD 1 million.
Read our article:What is an NRI Bank Account?
An NRI cannot utilize funds in the NRO account for investing in the Indian company, as these funds are used for local investments. Moreover, if funds from the NRO bank account are used for investing in an Indian company, then the sole purpose of foreign direct investment would be defeated.
Therefore, NRO accounts can only be used for making payments. However, the RBI has provided specific methods for carrying out investment by a Non-resident Indian. The Non-resident Indian has to use the prescribed methods for subscribing to shares in an Indian company.
The following are the methods used for subscribing to shares in an Indian company:
The above modes of payment for consideration of shares from an Indian company are repatriable.
An NRI investment made through the above modes would come under the purview of foreign direct investment. Foreign direct investment is considered as an inbound investment under FEMA. An investment that is made in the equity instruments of a company for the exchange of shares is considered as FDI. Any investment which is made by a Foreign Portfolio Investor is considered as FDI if the investment is more than 10% of the equity portfolio of the company.
A non-resident Indian can invest in the following securities to come under the definition of foreign direct investment:
A non-resident investor would have to use the following routes for investment. The routes for foreign direct investment are as follows:
As the sectors under the government route are sensitive, they require prior approval from the government and the concerned regulatory authority in the country. Therefore a Non-resident investor would have to take prior permission from the relevant regulatory authority before investing under an automatic or approval route.
A non-resident Indian is allowed to invest in shares and securities in the Indian company. If the individual is a citizen of a country that shares land borders with India, then approval is required from the government of India.
This would also be applicable to a company registered in the country that shares land borders with India.
The following countries share borders with India:
The principal of the beneficial owner is crucial for understanding whether the investment from the above countries falls under the purview of foreign direct investment. A non-resident can invest in an Indian company. However, certain compliances have to be followed by the Indian company after issuing the securities.
FC-GPR reporting has to be carried out by the Indian company that receives foreign direct investment for shares to the non-resident Indian. The RBI issues the FC-GPR form for filing foreign exchange received for the issue of shares. The company must report the details of the foreign investment issued within the prescribed period.
When a listed or unlisted Indian entity issues shares to the Non-resident Investor, the company must issue FC-GPR to the RBI within 30 days of allotment of the shares to the NRI. The form FC-GPR is used for this purpose.
The form is submitted to the RBI in the Form FC-GPR through the SMF in the FIRMS website maintained by the RBI. The Firms website is a website used by the RBI for monitoring compliance with foreign direct investment.
The following information has to be obtained by the applicant before submitting any report to the RBI:
The above process must be followed by an Indian company receiving foreign direct investment from a Non-resident Indian. For FC-TRS compliance, the company must submit the form and relevant documentation to the RBI within 30 days of transferring the shares.