FEMA Compliance Checklist for Foreign-Owned Indian Companies
FEMA Compliance Checklist for Foreign-Owned Indian Companies
Foreign Direct Investment (FDI) in India is governed by the Foreign Exchange Management Act (FEMA), 1999, which sets the framework for inbound investment, repatriation of funds, and ongoing compliance. For foreign-owned Indian companies, strict adherence to FEMA rules is not just a legal requirement but also crucial for maintaining credibility with regulators, investors, and financial institutions.
This article provides a comprehensive FEMA compliance checklist tailored for foreign-owned Indian companies.
🔑 1. FDI Entry Routes and Sectoral Caps
Automatic Route – Certain sectors allow foreign investment without prior approval from the Reserve Bank of India (RBI).
Approval Route – Sectors that require government approval before investment.
Sectoral Caps – Ensure investment does not breach prescribed limits (e.g., defence, telecom, insurance).
👉 Companies must verify that their business activity aligns with permitted routes and caps under FDI Policy.
📄 2. Reporting of Foreign Investment
Every inflow of foreign funds must be reported to RBI through the FIRMS (Foreign Investment Reporting and Management System) portal:
FC-GPR (Form for Issue of Shares to Foreign Investors) – Must be filed within 30 days of share allotment.
FC-TRS (Transfer of Shares between Resident and Non-Resident) – Must be filed within 60 days of transfer.
Annual Return on Foreign Liabilities and Assets (FLA Return) – Due by 15 July every year.
Downstream Investment Reporting – Applicable where a foreign-owned company invests further in another Indian entity.
💰 3. Pricing Guidelines
Shares issued or transferred must adhere to valuation norms prescribed by FEMA.
Valuation must be certified by a SEBI-registered Merchant Banker or Chartered Accountant.
🏦 4. Repatriation and Dividend Rules
Dividends and profits can be freely repatriated subject to applicable tax deduction at source (TDS).
Ensure compliance with Double Taxation Avoidance Agreements (DTAAs) where relevant.
⚖️ 5. ODI (Overseas Direct Investment) Restrictions
If the foreign-owned Indian company wishes to invest abroad, it must comply with FEMA’s ODI framework:
File Form ODI with AD Bank.
Ensure limits under the Liberalised Remittance Scheme (LRS) are not violated.
📑 6. Compliance with Sector-Specific Conditions
NBFCs – Require minimum capitalisation norms.
E-commerce – Only marketplace model allowed under FDI; inventory-led model prohibited.
Defence/Telecom/Insurance – Subject to additional licensing requirements.
🔍 7. Statutory Registers & Documentation
Maintain records of share allotments, board resolutions, and RBI filings.
Keep proof of inward remittances (FIRC – Foreign Inward Remittance Certificate).
Retain valuation certificates and agreements for audit and inspection.
📆 8. Timely Filing & Penalty Avoidance
Non-compliance with FEMA may lead to penalties up to 3 times the amount involved, compounding fees, and restrictions on further foreign investment. Timely filings and professional guidance help avoid such consequences.
✅ FEMA Compliance Checklist (Quick Reference)
✔️ Verify sectoral caps & entry routes before accepting FDI
✔️ File FC-GPR within 30 days of allotment
✔️ File FC-TRS within 60 days of transfer
✔️ File Annual FLA Return by 15 July
✔️ Maintain inward remittance certificates (FIRC)
✔️ Follow pricing guidelines for issue/transfer of shares
✔️ Report downstream investments promptly
✔️ Ensure dividend repatriation complies with FEMA & tax laws
✔️ Maintain statutory registers and valuation reports
✔️ Monitor penalties and opt for compounding if required
🌍 Conclusion
For foreign-owned Indian companies, FEMA compliance is non-negotiable. With RBI and other regulators tightening scrutiny, even minor lapses can trigger financial penalties and reputational risk. Building a robust compliance framework, leveraging expert advisory, and maintaining a proactive reporting culture ensures smooth operations and investor confidence.
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