Annual
Return on Foreign Liabilities and Assets (FLA Return)
- An
Analysis (Key Points, FLAIR System, FAQ’s and Important Definitions)
1. Compliance Particular: Annual
Return on Foreign Liabilities and Assets (FLA Return)
2.Requirement: FLA Return is required to be submitted
mandatorily by all the India resident companies which have received FDI and/ or
made ODI in any of the previous year(s), including current year.
3. Who / Why is required to Comply:
Entities who holds
foreign assets or liabilities in their financial statements as on 31 March.
The annual return on Foreign Liabilities and
Assets (FLA) is required to be submitted by the following entities which have
received FDI (foreign direct investment) and/or made FDI abroad (i.e. overseas
investment) in the previous year(s) including the current year i.e. who holds
foreign assets or/and liabilities in their balance sheets;
·
A Company within
the meaning of section 1(4) of the Companies Act, 2013.
·
A Limited Liability
Partnership (LLP) registered under the Limited Liability Partnership Act, 2008
·
Others [include
SEBI registered Alternative Investment Funds (AIFs), Partnership Firms, Public
Private Partnerships (PPP) etc.]
4. Key Point: If the Indian company does not have any
outstanding investment in respect of FDI and/or ODI as on end of the reporting
year, the Company need not submit the FLA Return.
Similarly, if the Indian company has not ‘received any fresh FDI and/or
ODI in the latest year but the company has outstanding FDI and/or ODI, then
that company is still required to submit
5. Due Date: on or before 15 July every year
(Due date of filing the FLA return for 2018-19 has been extended to July
31, 2019)
The existing mechanism of email
based submission of FLA forms will be discontinued.
(FLAIR System: Foreign Liabilities and Assets Information
Reporting System)
7. The User Registration requires two uploads
(a) SCANNED (as PDF/JPG) and SIGNED authority letter and
(b) Verification letter (SAVED AS XXXX.PDF (NOT SCANNED), NOT SIGNED)
a) Draft Format of Verification letter _
For FLAIR System 2019
b) Draft Format of Authority Letter _ For FLAIR System
2019
8. Format of Registration Form and FLA Form is
available :
Kindly Note that : Indian
entities which do not comply with the said requirement will be treated as
non-compliant with FEMA.
Some Important FAQ’s:
1. Whether, in Section II- Item 2.3 of FLA Return, the
Non-Resident Equity and participating Preference Shares Capital holding (%) is
being calculated with respect to Item 1.0 (Total Paid-up capital) or Item 1.1
(Total Equity and participating Preference Shares Capital)?
Since
Non-Participating share capital is a type of debt investment and is part of
Item 1.0, Non-Resident Equity and participating Preference Shares Capital
holding (%) is calculated with respect to item 1.1 (of Section II) and not 1.0.
2. In the Section II Block 2 of FLA form, what should
I take for convertible preference share?
Fully
diluted preference share
3. Where should we report the premium on issue of
Equity Share Capital?
Premium
on issue of Equity Share Capital is a part of Reserve, which should be reported
under the item 4.1 of 1C- Reserves and Surplus, (in Section II).
4. What should we include in 5. Sales and Purchase (in
Section II)?
In these
fields, you are required to provide the information relating to all purchases [including
capital (from balance sheet) and revenue of goods and services] / sales made
domestically as well as foreign during the reference period (April - March).
The
detailed information to be furnished in 5. Sales and Purchase are as follows:
a. All expenses
(excluding depreciation) /sales shown in profit and loss account to be taken as
total purchases/total sale.
b. Both
goods and services are to be included.
c. All
foreign purchases/ sales i.e. imports and exports, should be captured from
P& L Account.
5. In Section III Block 1 of FLA form, which
will be the date of first receipt of FDI received?
Take
Settlement date/allotment date
6. What is
meant by “Disinvestments in India during the year”/
“Disinvestments abroad during the year”?
Any disinvestments made by non-resident direct investor of the reporting
Indian company during the year should be reported in section III item 3.0 (all
blocks). Likewise, any disinvestment made by the reporting Indian company in
its DIE abroad during the year should be reported in section IV item 3.0 (all
blocks).
7. Where should we report the non-participating
preference share issued to non-resident?
Non-participating preference
shares are treated as debt securities. (a) If the Non-participating preference
shares are held by foreign investor who is also holding equity shares of Indian
reporting company, then Non-participating preference share should be reported
at item 2.1 of 1.b FDIand 2.b DI in Section III (depending upon the % equity
& participating preference share held by foreign investor) at nominal
value.
8. Where should we report
Fully/Partially/Non-convertible debentures issued to the non-residents in FLA
Return?
Fully/Partially/Non-convertible
debentures are treated as debt securities. (a) If the debentures (of any type)
are held by foreign investor, the amount should be reported at item 2.1 of 1.b
FDI and 2.b DI in Section III (depending upon the % equity plus participating
preference share held by foreign investor) at nominal value.
9. What treatment should be given to share
application money received from non-resident investor?
If the share application
money is received from the existing non-resident shareholder, then the
outstanding share application money should be reported at item 2.1 of 1.b FDI and
2.b DI in Section III, depending upon per cent of equity plus participating
preference share holding by non-resident investor.
10.
Whether, any assets or liabilities for Indian party (i.e. domestic assets and
liabilities) are to be included in the FLA Return?
Any domestic liabilities or
assets (even if it is in foreign currency) should not be reported in the FLA
return.
11. What
exactly is the meaning of 1.b ODI in Section IV under Foreign assets?
1.b ODI of
Section IV on foreign assets captures the information on financial details of
Overseas Company in which your company’s equity holding is 10 per cent or more
12. If the overseas subsidiaries/ joint venture
company’s accounting period is different from the reference/reporting period
(i.e. April-March) in the Return, then what information should we furnished in
Section IV?
Companies are required to
furnish the information on outstanding external liabilities and assets as on
end-March of previous and latest year. In case if the accounting period of
overseas subsidiaries/ joint venture of Indian reporting company is different
from the reference period, then the information for end-March should be given
on internal assessment basis.
13.
In case where overseas company (DIE) is
unlisted, how can we calculate the market value of overseas equity investment
using OFBV method under 1.b ODI of Section IV?
For
valuation of overseas equity investment OFBV Method should be used, as
explained below:
OFBV
Method:
Market
value of equity capital held by you at OFBV for unlisted companies
= (Net
worth of the DIE) * (% of equity held by you) Where,
Net worth
of the DIE = Paid up Equity & Participating Preference share capital of
company +Reserves & Surplus - Accumulated losses (which is automatically calculated
in item 3.5 in 1.b ODI).
As per 1.b
ODI of section IV the formula is given below:
Item 1.1
Claims on Direct Investment Enterprise = (Item 3.3/ Item 3.2) * (Item 3.5* Item
3.6)/100000 for reference period Where, Item 3.2, Item 3.3, Item 3.5 and Item
3.6 are extracted from 1.b ODI.
14. How will we do the valuation of the equity
capital for listed DIE?
If the overseas company is
listed then closing share price as on reference period, i.e. end-March of
previous and latest year should be used for valuation of equity investment.
15. What
information should be reported in FLA return, if balance sheet of the company
is not audited before the due date of submission?
If the company’s accounts are not audited before
the due date of submission, i.e. July 15, then the FLA Return should be
submitted based on unaudited (provisional) account. Once the accounts get
audited and there are revisions from the provisional information submitted by
the company, company can submit the revised FLA return based on audited
accounts by end–September.
16. In case where account closing period of the company
is different from reference period (end-March), can we report the information
as per account closing period?
No, the
company cannot report the information as per the account closing period, in
case it is different from March closing. Information should be reported for the
reference period only, i.e. previous March and latest March, based on the
company’s internal assessment.
17. If the old/new company fails to file the FLA form
before the due date; can the company submit the FLA form?
Yes,
company can file the FLA return after due date by taking approval from RBI.
18.
If
an old/new company wants to file the previous year FLA form; can the company
file the previous year FLA form?
Yes,
company can file the previous year FLA form (through online FLA portal only) by
taking approval from RBI. For taking approval, they need to send mail to surveyfla@rbi.org.in.
19.
If
an old/new company wants to delete the previous version of FLA form or modify; can
the company delete/modify the FLA return?
Yes,
company can delete/modify the FLA return after taking the approval from RBI
(RBI will provide due date on the FLA portal).
Important Definition(s):
Sl. No.
|
Particulars
|
Definition(s)
|
1
|
Residence of
Enterprises
|
An enterprise is said to have a centre of economic interest
and to be a resident unit of a country (economic territory) when the
enterprise is engaged in a significant amount of production of goods and/or
services in that centre or when it owns land or buildings located in that
centre. The enterprise must maintain at least one production establishment in
the country and must plan to operate the establishment indefinitely or over a
long period of time
|
2
|
Direct investment
|
Direct
investment is a category of international investment in which a resident
entity in one economy [Direct Investor (DI)] acquires a lasting interest in
an enterprise resident in another economy [Direct Investment Enterprise
(DIE)]. It consists of two components, viz., Equity Capital and Other
Capital.
|
3
|
Equity
Capital under Direct Investment
|
It covers (1) foreign equity in branches and all
shares (except non-participating preference shares) in subsidiaries and
associates; (2) contributions such as the provision of machinery, land &
building(s) by a direct investor to a DIE by equity participation; (3)
acquisition of shares by a DIE in its direct investor company, termed as
reverse investment (i.e. claims on DI).
|
4
|
Other Capital
under Direct Investment
|
The other capital component (receivables and
payables, except equity and participating preference shares investment) of
direct investment covers the outstanding liabilities or claims arising due to
borrowing and lending of funds, investment in debt securities, trade credits,
financial leasing, share application money etc., between direct investors and
DIEs and between two DIEs that share the same direct Investor.
Non-participating preference shares owned by the direct investor are treated
as debt securities & should be included in ‘other capital’.
Identification
of the Indian company (Item 9, Section-I).
|
5
|
Foreign
Subsidiary
|
An Indian
company is called as a Foreign Subsidiary if a non-resident investor owns
more than 50% of the voting power/equity capital OR Where a non-resident
investor and its subsidiary(s) combined own more than 50% of the voting
power/equity capital of an Indian enterprise.
|
6
|
Foreign
Associate
|
An Indian company is called as Foreign Associate
if non-resident investor owns at least 10% and no more than 50% of the voting
power/equity capital OR Where non-resident investor and its subsidiary(s)
combined own at least 10% but no more than 50% of the voting power/equity
capital of an Indian enterprise.
|
7
|
Special
Purpose Vehicle
|
A special purpose Vehicle (SPV) is a legal entity
(usually a limited company of some type or, sometimes, a limited partnership)
created to fulfil narrow, specific or temporary objectives. SPV have little
or no employment, or operations, or physical presence in the jurisdiction in
which they are created by their parent enterprises, which are typically
located in other jurisdictions (economies). They are often used as devices to
raise capital or to hold assets and liabilities and usually do not undertake
significant production.
|
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