FEMA Filings After a Foreign Investment in Your Startup: FC-GPR, FC-TRS and the FLA Return

When a foreign investor invests in an Indian startup, the money comes with reporting obligations under the Foreign Exchange Management Act (FEMA). The company has to report the investment to the RBI, within set timelines, through its authorised dealer bank. Missed or late filings are among the most common issues investors find in due diligence, and fixing them later costs money. This guide explains the main filings.

Before the Money Comes In

• Check that foreign investment is allowed in your sector under the automatic route, or whether government approval is needed.
• Make sure the price meets FEMA pricing rules. For shares issued to a non-resident, the price must be at least the fair value, worked out by an internationally accepted method and certified by a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant.
• Register the company on the RBI's FIRMS portal, which is used for these filings.
• The investment has to come in through normal banking channels, into the company's bank account, and the bank completes KYC on the foreign investor.

Issuing Shares: FC-GPR

When the company issues shares or convertible instruments to a non-resident, it reports the issue in Form FC-GPR on the FIRMS portal.

• The shares must be issued within 60 days of receiving the money. If not, the money generally has to be refunded within the next 15 days.
• FC-GPR is due within 30 days of the allotment.
• It's filed with supporting documents, such as the valuation certificate, the bank's KYC report and foreign inward remittance details, and a certificate from a company secretary on compliance with the Companies Act and FEMA.

The authorised dealer bank reviews the filing and forwards it to the RBI.

Transferring Shares: FC-TRS

When shares are transferred between a resident and a non-resident, for example when a foreign investor buys shares from a founder, the transfer is reported in Form FC-TRS.

• FC-TRS is due within 60 days of the transfer of funds or receipt of the consideration, whichever is earlier.
• The resident party to the transfer is responsible for filing it.
• The price must meet FEMA pricing rules: a non-resident buying from a resident can't pay less than fair value, and a non-resident selling to a resident can't receive more.

Convertible Notes and Other Instruments

Convertible notes issued by eligible startups to non-residents also have to be reported, within the set timeline. Conversions of CCPS or notes into equity, and certain other changes, can have their own reporting requirements.

The Annual FLA Return

Every company that has received foreign direct investment, including in earlier years, must file the Annual Return on Foreign Liabilities and Assets (FLA) with the RBI by 15 July each year. It's easy to forget in years with no new investment, but it's still required.

Late Filings

If a FEMA filing is late, it can usually still be filed by paying a late submission fee, calculated on the amount involved and the length of the delay. Persistent or serious contraventions may need to be compounded with the RBI. It's much cheaper to file on time.

Downstream Investment

If a company with foreign investment invests in another Indian company, that downstream investment may also need to be reported, and must follow the same sectoral rules.

A Checklist for Each Foreign Round

1. Confirm the sector is open under the automatic route.
2. Get a valuation that meets FEMA pricing rules.
3. Receive the money through banking channels, with KYC.
4. Allot within 60 days and file PAS-3 with the ROC.
5. File FC-GPR within 30 days of allotment.
6. File FC-TRS for any secondary transfers within 60 days.
7. File the FLA return by 15 July every year.

Getting Help

Think Filing handles FEMA pricing, FC-GPR, FC-TRS and FLA filings for startups, and regularises late filings where needed.

Sources

• Foreign Exchange Management Act, 1999.
• FEMA (Non-debt Instruments) Rules, 2019.
• FEMA (Mode of Payment and Reporting of Non-debt Instruments) Regulations, 2019.
• RBI Master Direction on Foreign Investment in India.