Annual Return on Foreign Liabilities and Assets (FLA Return) Under FEMA 1999

As more companies involve themselves with foreign investments, the importance of the Foreign Exchange Management Act (FEMA) regulations and their compliance becomes a major part of the company’s operations. FLA return is one of the compliances that have to be met by the companies that have either received FDI or made ODI.

What is FLA Return and who is required to file it?

Annual return on Foreign Liabilities and Assets (FLA) has been notified under FEMA 1999 and it is required to be submitted by all the Indian resident companies which have received FDI and/ or made overseas investment in any of the previous year(s), including the current year. 

Entities which are required to file FLA Return are stated below:

• 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), Branches, or Trustees].

Companies exempted from filing FLA return

• Companies that have only issued shares on a non-repatriable basis to the non-residents of India are exempt from filing FLA return.
• Companies that do not have any outstanding balance of FDI or ODI by the end of the financial year are exempt from filing FLA return.
• Companies that have only received share application money and have not received any FDI or not made any ODI, are exempt from filing FLA return.

Due Date of Filing FLA:

FLA return is mandatory under FEMA 1999 and companies are required to submit the same based on audited/ unaudited accounts by July 15 every year. However, for submitting Form FLA for the FY 2019-20, the due date has been extended to 31^st, July 2020.

If the company’s accounts are not audited before the due date of submission, i.e. July 15 (or extended date 21^st July, 2020), 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, they are supposed to submit the revised FLA return based on audited accounts by end – September i.e. 30th September.

Penalty:

There are no specific penalties for FLA however, asper. (A.P. (DIR Series) Circular No. 29, dated February 02, 2017), Non-filing of FLA return before the due date will be treated as a violation of FEMA and penalty will be levied on defaulters which shall be–

• If, the amount against which offense is quantifiable, then the penalty will be “THRICE” the sum involved in the contravention.
• Where the amount cannot be quantified the penalty may be imposed up to two lakh rupees.
• If, the contravention is continuing every day, then Five Thousandfor every day after the first day during which the contravention continues.

Further, in addition to the penalty, any currency, security or other money or property involved in the contravention may also be confiscated.

How to file Form- FLA

RBI has provided a web-based interface https://flair.rbi.org.in for filling form FLA.

Registration

On the FLA Portal, click on the “New Entity User” for the Entity User Registration, fill the form and attach the authority letter and verification letter in the prescribed format (Explained below). After filling the “User Registration Form”, a mail will be received with a User ID and password code on the registered email id. Change the password using the password code and the registration procedure is complete. Go to Login Page (user will receive email OTP every time you log in the portal) for Further Reporting.

Authority letter:

It is the Letter of Authorization for filing of annual return on FLA. It is to be obtained from reporting company on its letter-head, in the format as provided on the FLA Portal. It should be signed by the consent authorised authority. The scanned copy (as PDF/JPG) of the same needs to be uploaded. It comprises the name of the company, Directors, PAN, CIN and registered address.

Verification letter:                                                   

It is the letter for verifying CIN and PAN of authorised person filing annual FLA form. Verification letter will have only the name and designation of the signatory that authorised the user in the authority letter and the scanned copy (as PDF) of the same needs to be uploaded.

Filling

FLA Form is divided into 5 major sections. The details of which are as follows-

I.        Section I (Identification Particulars): Section I comprises the basic Identification particulars such as Name and Address of the reporting Indian Entity, PAN Number, CIN Number, Contact Details and other basic information.

II.        Section II (Financial Details): Section II comprises the Financial Details of Reporting Entity such as Total Paid- up Capital, Profit and Loss, Reserves & Surplus, Sales and Purchases made during the year.

CARE: Information should be reported for both the reference period, i.e. Previous March and Latest March. If reporting period is different from Account Closing Period, then information should be given on internal assessment basis for the reference period.

• Section III (Foreign Liabilities): This section is required to be filled when the entity has any outstanding foreign liability. It comprises the details of the investors who have made investment in the Indian entity
• either under Foreign Direct Investment (FDI) scheme [10% or more Equity Participation/ Less than 10% Equity Holding] stating the type of capital such as Equity Capital, Liabilities to and claims on Direct Investors ,Other Capital and along with this providing information about the holding percent of Equity and Participating Preference Share Capital.
• or Portfolio Investment scheme in which the user is required to furnish the outstanding investments by non-resident investors, other than those made under Foreign Direct Investment Scheme in India, stating information about Equity Securities (at Market Value),Debt Securities, Money Market Instruments (Original Maturity up to 1 year) and Bonds and Other instruments (Original maturity more than 1year) by Country of non-resident enterprise

1. Section IV (Foreign Assets): This section is required to be filled when the entity has made any investment outside India. It Comprises the details of the investment made by the reporting enterprise outside India by way of Equity Capital, Reserves & Surplus of Direct Investment (DIE) Abroad(10% or more equity holding by Indian reporting company). It also comprises the details of Investments-
2. either under Overseas Direct Investment scheme by way of equity capital, claims on and liability to Direct Investment Enterprise and other capital stating Name of the non – resident Direct Investment Enterprise , Country of non-resident DIE and Equity holding as at the end of latest year (%) (10% or more equity holding/Less than 10% equity holding)

• or Portfolio Investment scheme in which furnish the market value of outstanding investments in non-resident enterprises, other than those made under ODI scheme, stating information about Equity Securities (at Market Value),Debt Securities, Money Market Instruments (Original Maturity up to 1 year) and Bonds and Other instruments (Original maturity more than 1year) by Country of non-resident enterprise.

The amount in foreign currency of foreign assets is converted into Indian currency in accordance with the exchange rate given as on closing date of reference period.

1. Section IV-A (Outward Foreign Affiliates Trade Statistics [Outward FATS]): It comprises the details of the amount in foreign currency (in actual) in case of Imports, Exports, Total Sales and Total Purchase of Direct Investment Enterprise (DIE) Abroad (more than 50% equity holding by Indian reporting company).
2. Section V (Other Assets and Liabilities with Foreign Unrelated parties): This is a residual category that includes all financial outstanding liability and claims not considered as direct investment or portfolio investment.

After successful submission of the form you will get system-generated acknowledgement receipt.

(Refer Annexure II Performa of FLA Requirements to be taken from client for filling the form.)

Key Points

The points which are required to be kept in mind while filling FLA Return:

• At the time of filling the basic credentials it is preferable to give the Email Id and Phone Number of the accountant instead of the director or partner in order to avoid hindrance in receiving the OTP, as every time of login the OTP is provided to the authorised person in the email (provided in FLA user registration Form).
• Open the FLA Portal on the laptop or Personal computer supported by strong internet connection as little disturbance in the network can lead to automatic logout from the Portal.
• While filling FLA Form ,Keep the Financials and other relevant data readily available in excel or in PDF format subject to the conditions prescribed by the RBI because at the time of filling FLA Return each Section is required to be filled completely with all the necessary details and after it’s validation only we can proceed towards next section.
• After filing and validation of Section V of FLA Return, a report is generated which is a Summarized Report that helps in verifying the credentials filled in each Section and after verification we can submit the same. Final form before submitting can be reviewed in this way entirely.
• Submitted Form can be saved in pdf.
• Reporting entities will get system-generated acknowledgement receipt upon successful submission of the form.
• 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.

Annexure I

Details required at the time of Registration for the New Entity User: 

 Annexure II

FLA requirements for FY 2019-20

1. Financial statements of the Indian Reporting Enterprise.
2. Number of employees as per payroll for FY 2019-20 and 2018-19.
3. Non Resident shareholders details FY 2019-20 and 2018-19:

4. Details of Sales and Purchases:

5. Financial statements of the foreign enterprise in which investment is made (Foreign Assets), if any.

Investment in Indian Enterprise 

6. Please furnish is there any outstanding investments made under the FDI Scheme in India by Non-resident Direct investors, who were individually holding less than 10 per cent ordinary/equity and participating preference shares of your company as on 31.03.2020.

7. Please furnish here the outstanding investments by non-resident investors, other than those made under Foreign Direct Investment Scheme in India (i.e. Portfolio Investment)? If yes Provide the following details :

Investment made outside India (Foreign Asset)

8. Please furnish here the number of shares and % holding of outstanding investments in Direct Investment Enterprise(DIE)(Foreign Enterprise), made by your company under the ODI Scheme, in each of which your company hold less than 10 % equity shares as on 31.03.2020, if applicable:

9. Please furnish here the number of shares and % holding of outstanding investments in non-resident enterprises other than mentioned above (I.e. portfolio Investment abroad), If applicable :