Integrating Foreign Investments in India

For a country where capital is not readily available, Foreign Direct Investment (FDI) has been an important source of funds for companies. Under FDI, overseas money, either by an individual or entity, is invested in an Indian company. In India, foreign direct investment policy is regulated under the Foreign Exchange Management Act, 2000 governed by the Reserve Bank of India (RBI). Funds from foreign countries could be invested in India in shares, properties, ownership /management or collaboration. Based on this, Foreign Investments are classified as below:

• Foreign Direct Investment (FDI)
• Foreign Portfolio Investment (FPI)
• Foreign Institutional Investment (FII)

The Reserve Bank of India has recently introduced new directions under the provisions of the Foreign Exchange Management Act, 1999 vide A.P. (DIR Series) Circular No. 30 notified on the 7 June 2018 (hereinafter referred to as ‘RBI Circular’), laying down the procedure for implementation of the reporting of foreign investments through the Single Master Form (SMF)

The Present system of reporting total foreign investment in India

The reporting of total foreign investment in India made by persons resident outside India through eligible capital instruments in the investee Company or capital contribution in the Limited Liability Partnership (LLP) or investments in other investment vehicles involved use of various forms and modes (online / offline) which lead to disintegrated reporting.

Regulation 13 of the Foreign Exchange Management (Transfer or Issue of Security by P erson Resident Outside India) Regulations, 2017 (“TISPRO Regulations”) currently prescribes twelve different types of forms for FDI reporting.

In order to integrate the extant reporting structures of various types of foreign investment in India, the RBI has introduced a system of Single Master Form (SMF). The SMF is proposed to be an online form that would subsume eight of the twelve reporting requirements, along with an additional obligation of reporting in case of investment by person resident outside India in an Investment Vehicle including AIF, REIT and InVIT. Four forms that may remain outside the framework of SMF, and may likely continue to be filed in the manner they are currently filed with the RBI, are Advance Remittance Form, Annual Return on Foreign Labilities and Assets, Form LEC (FII) and Form LEC (NRI).

Key highlights of the SMF

• SMF would provide a facility for reporting total foreign investment by a non-resident in an Indian entity viz. Company, LLP and other investment vehicle viz. Real Estate Investment Trusts (REITs) / Infrastructure Investment Trusts (InvIts) / Alternative Investment Funds (AIFs).
• Companies and LLP (Indian entities) has to provide information on total foreign investment within a period of 15 days starting from 28 June 2018 to 12 July 2018 in a manner prescribed under Entity Master Form. Indian entities not complying with this pre-requisite i.e. filing of Entity Master Form will not be able to receive foreign investment (including indirect foreign investment) and will be considered as non-compliant with FEMA and regulations made thereunder.
• In order to comply with the timeframe, RBI has advised Indian entities that received foreign investments (including indirect foreign investment through downstream investment), to be ready with the details to be provided in the Entity Master Form and SMF as per the formats prescribed. The final form, when hosted by RBI on its website, will be made available in the Master Directions – Reporting under FEMA.

The integration of reporting various types of foreign investment in India into a single form would simplify compliance for Indian entities and would ensure consistency and accuracy of data in reporting of foreign investment with Reserve Bank of India..