The Foreign Exchange Management Act (FEMA), 1999 governs India’s foreign exchange ecosystem and replaces the earlier FERA regime. FEMA was introduced to simplify and modernize India’s foreign exchange laws, ensuring that global transactions are carried out in a transparent, compliant, and business-friendly manner.

For corporations engaged in international transactions—FDI, overseas investments, cross-border mergers, trade, or restructuring—FEMA compliance is essential to avoid penalties, maintain regulatory transparency, and ensure seamless operations with foreign stakeholders.

Corporations must comply with FEMA in all cross-border dealings, including:

1. Foreign Direct Investment (FDI)
2. Overseas Direct Investment (ODI)
3. Cross-border Mergers & Acquisitions (M&A)
4. Export–Import Regulations
5. Reporting & Documentation Requirements
6. Penalties & Compounding Procedures

Each of these areas carries specific rules, pricing norms, reporting timelines, and documentation requirements.

FDI is governed by the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.

Key FDI Compliance Components:

1. Entry Routes

• Automatic Route:
• Most sectors allow FDI without prior government or RBI approval.
• Government Route:
• Sensitive sectors—defence, telecom, media—or investments breaching sectoral caps require approval.
• Additional scrutiny applies to investors from land-bordering countries.

2. Pricing Guidelines

• Shares transferred from a resident to a non-resident must be priced not below FMV.
• FMV must be calculated using internationally accepted valuation methods.

3. Reporting Requirements

• Corporates receiving FDI must file FLA Return with RBI by 15 July every year.
• Additional filings (e.g., Form FC-GPR, Form FC-TRS) apply depending on the transaction.

ODI compliance is governed by the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations.

1. Eligibility Conditions

Indian corporates must satisfy prescribed net worth, shareholding, and financial criteria before investing in a JV/WOS abroad.

2. Foreign Currency Accounts for ODI

Indian entities may open FC Accounts abroad only for ODI purposes, subject to the following:

• The account may be required under foreign laws of the host country.
• Funds in the account may only be used for ODI-related expenses.
• Dividends, fees, or income must be repatriated within 30 days.
• The account must be closed within 30 days of disinvestment.

3. Reporting & Certification Requirements

• All debits/credits in the FC account must be furnished annually to the AD bank.
• A Statutory Auditor’s Certificate confirming compliance with host country laws and FEMA is mandatory.
• Key filings: Form FC, Form FLA, and ODI-related reports to RBI.

1. Transfer/Issue of Securities

Any transfer or issue of shares to non-residents must comply with:

• Sectoral caps
• Entry route
• Pricing guidelines
• Reporting requirements

2. External Commercial Borrowings (ECB)

When M&A leads to transfer of ECB obligations:

• RBI approval may be required
• End-use restrictions and minimum maturity must not be violated

3. Exit of Foreign Shareholders

Buyback, capital reduction, and share transfer must follow FEMA pricing and remittance norms.

Assured returns are prohibited under FEMA.

4. Inter-company Loans & Guarantees

Any credit support to or from foreign group entities must follow:

• FEMA (Borrowing & Lending) Regulations, 2018
• Specified limits, tenor, end-use, and reporting norms

Exports and imports are governed by the Foreign Exchange Management (Export of Goods & Services) Regulations, 2015.

Key compliance requirements:

• Exporters may open foreign currency accounts to receive export proceeds.
• Export earnings must be realized and repatriated within RBI-prescribed timelines.
• Funds may be used for import payments, but must be properly accounted for.
• All export/import transactions must be reported accurately to AD banks.

Because FEMA touches every foreign exchange transaction, non-compliance impacts:

• Investment inflows
• Overseas expansion plans
• Banking and AD approvals
• M&A timelines
• International payments and remittances
• Financial reporting and audit readiness

A structured and timely FEMA compliance framework reduces regulatory risks and enhances investor confidence.

FEMA compliance is no longer a back-office activity—it is a core strategic requirement for any company engaged in global operations. Understanding sectoral rules, pricing guidelines, reporting timelines, and documentation norms ensures that businesses grow internationally without regulatory hurdles. A diligent compliance structure prevents penalties and fosters transparency across cross-border transactions.

At Visak Financial Services Pvt. Ltd. (VFSL), we specialize in:

• FEMA & RBI advisory
• ODI & FDI structuring
• Cross-border taxation
• Compounding applications
• End-to-end compliance documentation

Our expertise ensures that your global transactions are compliant, tax-efficient, and strategically structured to support long-term growth.