The Foreign Exchange Management Act (FEMA) is an important part of Indian law. FEMA manages the foreign exchange payments, investments, and transactions. If businesses deal with global financial transactions, it becomes necessary to file an Annual Performance Report (APR).
It was implemented in 1999 to replace the earlier Foreign Exchange Regulation Act (FERA) and aims to improve payments and trade with other countries while encouraging the orderly growth and maintaining India's foreign exchange market. In this article we are going to discuss the APR report, its regularity, due date, Penalties, and its connection to audited financial statements, and recent changes that affect this requirement.
What is the Annual Performance Report (APR)?
The Annual Performance Report is the important document mandated by FEMA for monitoring and managing foreign investments and verifying the compliance with FEMA regulations.
It is a detailed document that gives foreign investors information about the company's operational and financial performance. The RBI receives the APR, which is based on audited financial statements. The APR helps the RBI by making sure that the rules of the FEMA are met.
Who Regulates Compliance under FEMA?
- The Reserve Bank of India (RBI) is India's main foreign exchange regulation authority.
- Regarding tax treatment, NRI and company accounts will be regulated by the ITA.
- Capital instruments would be regulated by the Securities Law (SEBI).
- Apart from to the rules mentioned above, transactions involving companies will be governed by the Companies Act 2013
Who is Applicable for FEMA Act?
The Foreign Exchange Management Act, or FEMA, applies to overall in India and parallelly applicable to the offices which are situated outside India but managed by an Indian citizen.
The head office of FEMA is located in New Delhi and known as Enforcement Directorate.
There are the following points where FEMA Act is applicable:
- Foreign exchange.
- Foreign security.
- The transportation of any item or service from India to a foreign country.
- any goods or services that are imported from outside of India.
- Securities under the Public Debt Act ,1994
- Any type of purchase, sale, or exchange (that can be transferred).
- Banking, financial and insurance services.
- Any foreign business where at least 60% of the ownership is owned by an NRI (non-resident Indian).
- Any Indian national, whether living within the country or abroad (NRI).
Account Transactions Under FEMA Act
The FEMA Act divides current account transactions into three categories, which are as follows:
- Transactions prohibited by FEMA,
- The Central Government must approve the transaction.
- The RBI must approve the transaction.
Filing of APR & Audit requirement
According to the Foreign Exchange Management Regulations, 2022, resident individuals and Indian entities are required to submit an APR based on the foreign entity's audited financial statements. where they have control and equity holding of 10% or more.
Indian resident has no authority to control the foreign entity and it is not required to get its accounts audited in the host country, the APR may be filed using unaudited financial statements that have been certified by the Indian entity's statutory auditor or, in the absence of a statutory audit, it is done by a chartered accountant. If an Indian resident controls a foreign firm, audited financial statements must be provided. Even if the host country does not demand it.
Repatriation of dues as per FEMA:
Any resident of India who is allowed to receive foreign exchange must realize it and return it to India within a certain amount of time, according to the Foreign Exchange Management Act (FEMA). The Reserve Bank of India (RBI) specifies the repatriation timeline and protocol.
Frequency and Due Date:
Every year, the APR needs to be submitted. The due date of filing the APR is December 31st each year. According to the Overseas Direct Investment Regulations, those who failed to file the APR by 31st December, will be considered a violation under FEMA and chargeable to late submission Fees (LSF).
Penalties for Non-Compliance:
The RBI or the Directorate of Enforcement can impose penalties and take legal action for failure to submit the APR or for giving false information. FEMA implements penalties for failing to file the APR before the deadline, which include:
- Depending on the volume, duration of the delay, seriousness of the non-compliances, etc., the penalty imposed can be up to 3 times of the sum involved in contravention; and if the sum of contravention is not discovered or accountable, the penalty can be up to ₹ 200,000.
- If an Indian party files an APR after the deadline, there is a late submission fee of INR 7,500 each year. Up to three years after the reporting/submission deadline, the LSF option will be available.
Conclusion
Annual Performance Report and the Foreign Management Act help to establish a fair and open environment for foreign investors. Countries can attract investments that support economic growth while representing national interests by controlling foreign investments and evaluating their performance on an annual basis. The APR is an essential resource for tracking foreign investments and guiding future policy and regulatory decisions. Make sure that foreign investments have an important beneficial effect on the host nation. The APR is a necessary openness and transparency in a time of increased scrutiny and accountability requirements.
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