Foreign Direct Investment (FDI) Compliance Checklist

Narendra Kumar

07 Sep, 2019

The Remitting Investors should ensure that (for FDI) –

• Funds have to flow only from the investors’ bank accounts.
• The purpose of remittance should be stated as towards investment in share capital or as the case may be subject to FEMA compliance.
• Know Your Customer information to be transmitted along with the remittance

 The Company receiving the Investment should ensure that –

• Apply to the Bank for Foreign Inward Remittance Certificates (FIRC) indicating the receipt of remittance and the purpose of remittance as towards investment in share capital. Whereas there are few bankers who may insist on the declaration as per their banks’ format.
• Submit Report of Receipt of FDI to the Banker within 30 days of the receipt of remittance enclosing a copy of FIRC. Obtain acknowledgment of submission from the bank.
• Allotting Unique Identification Number (UIN) for every remittance received and awaiting communication from Reserve Bank of India.
• Allot shares for the remittance received within 180 days of receipt of remittance, by doing the following –
  • Obtain a share valuation report from Chartered Accountant
  • Increase Authorized Share Capital, if necessary, by complying with the requirements of the Companies Act.
  • Allot shares by complying with the requirements of the Companies Act.
  • Obtain Certificate from practicing Company Secretary for the fulfillment of Companies Act compliances for FDI.
• Submitting Part A of Form FC-GPR within 30 days of allotment by reporting allotment of FDI to the banker by enclosing the below-mentioned documents –
  • Valuation Report obtained from Chartered Accountant
  • Company law compliance certificate obtained from Company Secretary
  • Copies of FIRC
• Submit Annual Return of Foreign Liabilities & Assets, in Part B of Form FC-GPR, with the Reserve Bank of India^[1], External Liabilities and Assets Statistics Division, Mumbai, before 15th July of every year, also enclosing audited financials of the company.

Checklist for Foreign Direct Investment (FDI Report)

• Check whether the company is allowed to raise FDI under Automatic Route.
• Check sectorial caps.
• Check whether the appropriate approval is received from FIPB/RBI before the receipt of FDI in case of approval route.
• Checking whether the Investor is a resident of or any organization incorporated in Bangladesh / Pakistan. No Investment from Pakistan is allowed.
• Check whether the FIPB prior approval is taken for investment from a resident of or entity incorporated in Bangladesh.
• Check whether the FDI has come through:-
  • By inward remittance through normal banking channels; or
  • By debit to NRE/FCNR account of the person concerned maintained with an authorized dealer/authorized.
• Check the FDI if from a resident in Nepal and Bhutan as well as citizens of Nepal or Bhutan, is in Foreign Currency
• Check whether the Instrument proposed to be issued are only the following-
  • Equity shares
  • Fully and mandatorily Convertible Debentures
  • Fully and mandatorily Convertible Preference Shares
• Check whether the valuation is done as per FEMA 20/2000,i.e., as per CCI Guidelines
• Check whether FDI is in an SSI and if so only up to 24% of the paid-up capital is allowed. Allotment in excess should be made only if the unit-
  • Given up its small-scale unit status.
  • Is not engaged or does not propose to engage in the manufacture of items reserved for SSI.
  • Small-scale sector complies with the sectoral caps specified in Annex -1 of the Master Circular. Further RBI has clarified that the Indian company / SSI Unit would be reckoned as having given up its SSI status if the investment in plant and machinery exceeds the limits prescribed under the Micro, Small and Medium Enterprises (MSME) Development Act, 2006.
• Check Whether FIRC copies have been received.
• Checking the proposed dividend rate on Preference Share does not exceed 300 basis point above the prevailing SBI Lending rate.
• Check whether the advanced reporting form is filed within 30 days of receipt of FDI along with KYC form.
• Check whether the equity Instruments are issued within 180 days from the date of receipt of the inward remittance or by debit to the NRE/FCNR (B) account.
• In case of debenture issue check if articles allow the issue of debentures
• Check whether Press Note 2 /2009 and 4 of 2009, if applicable are followed.
• Check whether FEMA 24/2000 is followed for Investment in partnership firms or proprietary concern regulated under Section 2(h) of Section 47 of FEMA
• Check whether any Press Notes have been issued and amendments are pending in the FEMA.
• Note
  • Please mention the NIC Code in FDI report correctly
  • KYC report shall be stamped by the authorized dealer
  • Ensure that every page of the form FCGPR is signed and stamped