Mandatory filing of APR for investments made outside India

Prabhat Nigam

26 Feb, 2022

The Foreign Exchange and Management Act, 1999 (FEMA) has made mandatory filing of APR or Annual Performance Report separately for each and every JV/WOS if they are making investments outside India. The act of Non-filing of APR before the due date of 31^st December of every year shall be considered as a violation under FEMA.

What are JV/WOS?

JV is an acronym for Joint Venture and WOS is the acronym for wholly owned subsidiary. In the given context, both represent a foreign entity that has been incorporated according to the laws of the host country where the Indian Party (IP) or Resident Indian (RI) makes direct Investment.

A foreign entity will be considered as a JV of the IP/RI only when other foreign promoters are holding a stake along with the IP. However, in the case of WOS, the entire capital should be owned by one or more IP/RI.   

Penalty for late filing of APR

FEMA prescribes a penalty for late filing of APR by a JV/WOS for their investments made outside India. The maximum penalty that can be levied cannot exceed 300% of the investments made outside India. And the minimum penalty that can be imposed is computed under Foreign Exchange (Compounding Proceedings) Rules, 2000.

Investments made outside India that are permitted

For an Indian Party (IP)

The investments made outside India by an IP are termed as Overseas Direct Investments (ODIs). The maximum ODI permitted for an IP cannot exceed 400% of the effective net worth of the IP through JV/WPS which has been incorporated outside India.

For a Resident Indian (RI)

These kind of investments are known as ODIs through Liberalized Remittance Scheme. The limit under LRS has been fixed at 2.5 lakh USD for every financial year.

Filing of APR for both the IP and RI is based on the audited financial statements of the JV/WOS till 31^st December every year.

Both IP/WOS are also supposed to file APR based on the unaudited financial statements of the JV/WOS upto 31^st December thorough Liberalized Remittance Scheme^[1] (LRS).

Either IP or RI is required file APR on the basis of audited or unaudited financial statements of the JV/WOS till 31^st December every year in physical mode.

Separate form shall be filed by every JV/OWS in from ODI Part-II as provided on the website of RBI in the process of filing of APR.

Procedure for filing of APR

Filing of APR is done in the form of ODI Part-II by the IP/RI:

1. For the financial year ending on 31^st March 2022, the period for filing of APR lies between 1^st April 2021 to 31^st March 2022
2. The IP/RI needs to file the 13 digit alphanumeric Unique Identification Number (UIN) that has been allotted by the RBI to it. The name of the JV/WOS is also supposed to be filed along with it.
3. The details related to the capital structure of the JV/WOS which are recorded on the last day of the accounting year also need to be submitted along with it. Along with it the details related to the share capital amount and the percentage of the investments are to be filed. It must be remembered that the capital structure of the entity must be consisting of Indian Investments by the IP/RI and also the foreign investments by ‘other than’ the IP/RI.
4. The filing of APR also includes filing of the operational details of the JV/WOS for the last two years. The operational details include the net profit or net losses incurred, the dividend and its net worth in the last two years. One year operational details will be filed only in those cases where the time of operations of the JV/WOS has been one year only.
5. The JV/WOS also needs to file the details of repatriation from the date of commencement of business and also for the current financial year.
6. The details related to investments made in the Wholly owned Step Down Subsidiary of the JV/WOS also need to be furnished at the time of filing of APR.

Certificates to be enclosed with the APR

1. A certificate signed and stamped by the authorized person of the IP or the RI himself needs to be enclosed stating that all the legal compliance under FEMA have been fulfilled. This certificate shall be signed and printed on the letterhead of IP/RI.
2. A certificate signed and stamped by the statutory auditors of the IP or RI himself in case the RI does not have statutory auditors stating that all the compliances under FEMA have been fulfilled. This letter shall also be signed on the letterhead of IP/RI.

Printing, signing and stamping of APR

The printing of the APR shall be done on a normal A-4 size sheet and not on the letter head of the IP/RI.

Every page of the APR shall be signed and stamped by the authorized person of the IP and the last page of the APR shall be signed both by the authorized person of the IP and also by the statutory auditors of the IP.

In case, where the RI does not have statutory auditors, then RI will sign himself.

Documents to be attached with APR

1. Latest audited financial statements of the JV/WOS
2. Latest audited financial statements of the Holding Company
3. Duly filled and signed APR Form
4. Certificate signed and stamped from IP/RI
5. Certificate signed and stamped by the statutory auditors of the IP or by RI himself where does not have statutory auditors 
6. The copy of share certificates against the previous equity remittances made to JV/WOS
7. Cover letter of APR

Manner of submission of APR

The APR along with the above mentioned documents is to be submitted physically to the Authorised Dealer Bank of the IP/RI and acknowledgement of the same must be obtained for future correspondences and references with the RBI.

Conclusion

The Annual Performance report is the document tracking the amount of investments made in the JV/WOS of an IP/RI and the same needs to be submitted before 31^st December of every financial year failing which may give rise to penalties under FEMA. Therefore, filing of APR separately for each JV/WOS has become mandatory.

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