01 February 2013
can anyone tell me if an indian party invest in its WOS abroad and after first remmitance, what is the post compliance under FEMA and under Companies Act? after due study by me,I observe the following complinaces:-
Under Fema obligation of indian party:
1. Share Certificate to be received within six month from the date of remmitance and report to Authorised Bank 2. ODI Form Part- III i.e APR to be filled by 30 june to AD Bank 3. Annual Return on foreign liabilities and assets by 15 july
Under Companies Act: Balance sheet of WOS to be included in its holding Company AS PER SECTION 212 of Companies Act, 1956 So please advice will it sufficient compliance or any other thing to be included....
24 July 2024
Your understanding of the compliance requirements under FEMA (Foreign Exchange Management Act) and the Companies Act seems to be mostly correct regarding an Indian party investing in its Wholly Owned Subsidiary (WOS) abroad. Here’s a detailed analysis and additional points to consider:
### Under FEMA Obligations:
1. **Share Certificate from WOS:** - As per FEMA regulations, the Indian party (investor) should receive the share certificate from the WOS within 6 months from the date of remittance. This share certificate is evidence of the investment made. - The Indian party must report the receipt of the share certificate to the Authorized Dealer (AD Bank) through which the remittance was made.
2. **ODI Form Part III (Annual Performance Report - APR):** - The Indian party needs to submit the Annual Performance Report (APR), also known as ODI Form Part III, to the AD Bank by June 30th every year. This report details the financials and operations of the WOS abroad. - The APR is crucial to monitor the performance of the investment and to ensure compliance with FEMA regulations.
3. **Annual Return on Foreign Liabilities and Assets (FLA Return):** - The Indian party must file the FLA Return by July 15th every year. This return provides information on the financial assets and liabilities of the Indian company, including its overseas investments. - It helps in tracking the overall foreign exposure and compliance with the regulatory framework.
### Under Companies Act:
1. **Inclusion of WOS in Holding Company’s Balance Sheet:** - As per Section 129 of the Companies Act, 2013 (not 1956 as mentioned), the consolidated financial statements of the holding company must include the financials of its subsidiaries, including the WOS. - This ensures transparency and accountability in financial reporting across the group.
### Additional Considerations:
1. **Compliance with Taxation Laws:** - Ensure that all tax implications, including transfer pricing regulations and withholding tax on dividends repatriated from the WOS, are duly addressed. - Proper tax planning and compliance can mitigate risks and ensure smooth operations.
2. **Board Meetings and Governance:** - The WOS abroad must adhere to local governance requirements, including holding regular board meetings and maintaining proper corporate governance practices. - Ensure that decisions taken by the WOS align with the strategic objectives of the Indian parent company.
3. **Other Regulatory Requirements:** - Depending on the jurisdiction where the WOS is located, there may be additional regulatory and compliance requirements (e.g., labor laws, environmental regulations). - Stay updated with any changes in local laws that may impact the operations of the WOS.
### Conclusion:
Your identified compliance requirements under FEMA and the Companies Act are foundational. However, for comprehensive compliance, it’s advisable to engage with legal and financial advisors who specialize in international investments and corporate law. They can provide tailored advice based on the specific circumstances of your investment, ensuring adherence to all applicable laws and regulations. Regular monitoring and updates on regulatory changes will also help in maintaining compliance over the long term.
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