Going Global? Don't Forget FEMA!

The Indian business landscape is witnessing a surge in companies venturing overseas. This global expansion is exciting, but it's crucial to navigate the regulatory framework set by the Foreign Exchange Management Act (FEMA). Surpassing FEMA provisions, in any manner whatsoever, can lead to heavy penalties and prosecutions.

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FEMA: The Ultimate Guide to Foreign Transactions

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Enacted in 1999, FEMA governs foreign exchange transactions involving resident and non-resident persons including individuals, companies, associations, etc. The adherence to the legal framework and compliance requirements ensures smooth operations abroad while safeguarding India's financial stability.

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FEMA non-compliances observed while expanding businesses overseas

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• Overlooking Reporting Requirements:?Setting up a subsidiary or joint venture often requires reporting investments through Form FC to Authorized Dealer Banks within specified timelines, which is often overlooked by the Indian investor.
• Ignoring Share Certificate Rules:?The persons, Indian individuals or companies inadvertently omit to receive the share certificate of the foreign entity in which they have undertaken investments and thus, could not furnish the same to their banker as one of the statutory requirements.
• Pricing guidelines: Other than the case pertaining to subscription of shares to the Memorandum of Association of Foreign Company, the pricing guidelines are required to be complied with. It has been observed in many cases that the investments are made in violation of these guidelines.
• Missing Annual Filings:?The legal framework also provides the undertaking of mandatory annual compliances with RBI, i.e. filing of Annual Return of Foreign Liabilities and Assets and Annual Performance Report. This reporting requirement is often missed.
• Investment by a foreign entity in another company: In case of overseas investment by the resident Indian individuals, the statutory provisions prohibit the acquisition/ investment in any step-down subsidiary by such foreign entity, except in certain circumstances. However, it has been observed that foreign entities (which have investments from resident Indian individuals beyond the permissible limit) undertake such acquisitions/ investments in violation of the law and thereby adversely affecting the resident individuals.

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Avoiding the Compliance Maze

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• Plan Ahead:?Before venturing abroad, consult with professionals to understand relevant FEMA regulations.
• Partner with Experts:?Appoint professionals specialized in FEMA to ensure adherence and timely filing.
• ?Stay Updated:?FEMA regulations are subject to change. Regularly consult with your advisors or refer to RBI notifications for the latest guidelines.

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Compliance: A Stepping Stone, Not a Hurdle

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FEMA compliance isn't a burden, but a roadmap for a successful overseas foray. By prioritizing these regulations, the Indian residents can confidently navigate the global market while staying on the right side of the law.

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Authors: | Abhishek Bansal , Partner ([email protected])| Laxmi Sinha , Principal Associate ([email protected]) | ACUMEN JURIS ,?Law Office?(DELHI | GURUGRAM | BENGALURU | NOIDA)

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Practice Areas: Mergers & Acquisitions | Transaction Advisory | Corporate Commercial | Startup Advisory | Forensic Due Diligence | Global Business Setup

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Phone: 0124-4239845 |?Email:?[email protected]?|?Website:?www.acumenjuris.com

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Disclaimer- This Article is for information purposes only, and the views stated herein are personal to the author and shall not be rendered as any legal advice or opinion to any person, and accordingly, no legal opinion shall be rendered by implication. The Article does not intend to induce any person to omit, commit or act in any particular manner, and you should seek legal advice before you act on any information or view expressed herein. We expressly disclaim any financial or other responsibility arising due to any action taken by any person on the basis of this Article.

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