{"id":32023,"date":"2021-06-21T11:42:05","date_gmt":"2021-06-21T06:12:05","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=32023"},"modified":"2021-06-21T11:42:07","modified_gmt":"2021-06-21T06:12:07","slug":"fema-compliance-checklist-for-startups-from-fdi-standpoint","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/fema-compliance-checklist-for-startups-from-fdi-standpoint\/","title":{"rendered":"FEMA Compliance Checklist for Startups from FDI standpoint"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The Foreign Exchange Management Act (aka FEMA) administers the flow of overseas funds coming to India and vice versa. The Act came into effect in 1999, and apart from regulating the funds, it also laid down the <a href=\"https:\/\/corpbiz.io\/fema-compliance\"><strong>FEMA compliances<\/strong><\/a> for corporate bodies.\u00a0Foreign Direct Investment is one of the key sources of funding for the Indian business fraternity. Under foreign direct investment, i.e. FDI, funding from overseas firms and individuals is invested in Indian-based establishments and startups. A foreign investment amounting to more than 10% is deemed as FDI. The FDI policy is administered under the Foreign Exchange Management Act, 2000 under RBI. In this write-up, you will learn about the FEMA compliance checklist for startups from an FDI viewpoint. <\/p>\n\n\n\n<p><strong><em>In India, the funding under FDI is possible under two routes as\nmentioned below:<\/em><\/strong><\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/fema-compliance-checklist-for-startups-from-fdi-standpoint\/#Automatic_route\" >Automatic route<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/fema-compliance-checklist-for-startups-from-fdi-standpoint\/#Government_route\" >Government route<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/fema-compliance-checklist-for-startups-from-fdi-standpoint\/#Sectors_where_foreign_direct_investment_is_permissible_under_100-_automatic_route\" >Sectors where\nforeign direct investment is permissible under 100%- automatic route<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/fema-compliance-checklist-for-startups-from-fdi-standpoint\/#Sectors_embracing_up_to_100_overseas_funding_under_the_Government_route\" >Sectors embracing\nup to 100% overseas funding under the Government route<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/fema-compliance-checklist-for-startups-from-fdi-standpoint\/#Sectors_that_avert_FDI_under_Government_and_automatic_routes\" >Sectors that avert\nFDI under Government and automatic routes<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/fema-compliance-checklist-for-startups-from-fdi-standpoint\/#FEMA_compliance_Checklist_relating_to_FDI_under_Automatic_Route\" >FEMA compliance\nChecklist relating to FDI under Automatic Route<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/fema-compliance-checklist-for-startups-from-fdi-standpoint\/#FEMA_compliance_Checklist_relating_to_FDI_under_Government_Approval_route\" >FEMA compliance\nChecklist relating to FDI under Government Approval route<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/corpbiz.io\/learning\/fema-compliance-checklist-for-startups-from-fdi-standpoint\/#For_Direct_investment_taking_place_outside_India_under_Automatic_route\" >For Direct\ninvestment taking place outside India under Automatic route<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/corpbiz.io\/learning\/fema-compliance-checklist-for-startups-from-fdi-standpoint\/#Some_Other_Pivotal_Features_of_FEMA_Compliance\" >Some Other Pivotal Features of FEMA Compliance<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/corpbiz.io\/learning\/fema-compliance-checklist-for-startups-from-fdi-standpoint\/#Conclusion\" >Conclusion&nbsp;<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Automatic_route\"><\/span>Automatic route<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Under this route, the non-resident investor does have to avail prior permission from GOI or the <em><strong>Reserve Bank of India<\/strong><\/em><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Reserve_Bank_of_India\"><em><strong>[1]<\/strong><\/em><\/a><\/sup>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Government_route\"><\/span>Government route<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Under such a route, permission from concerned Ministries or Government-driven authorities is needed via the Foreign Investment Facilitation Portal (FIFB). FIFB is managed by the DIPP, aka Dept of Industrial Policy &amp; Promotion.\u00a0<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/nbfc-compliance-under-fema\/\">A Complete Overview on NBFC Compliance under FEMA <\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Sectors_where_foreign_direct_investment_is_permissible_under_100-_automatic_route\"><\/span>Sectors where\nforeign direct investment is permissible under 100%- automatic route<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/06\/automatic-route.png\" alt=\"Sectors where foreign direct investment is permissible under 100%- automatic route\" class=\"wp-image-32037\" width=\"511\" height=\"511\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/06\/automatic-route.png 1000w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/06\/automatic-route-150x150.png 150w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/06\/automatic-route-300x300.png 300w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/06\/automatic-route-768x768.png 768w\" sizes=\"(max-width: 511px) 100vw, 511px\" \/><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Sectors_embracing_up_to_100_overseas_funding_under_the_Government_route\"><\/span>Sectors embracing\nup to 100% overseas funding under the Government route<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Banking &amp; Public Sector \u2013 20%<\/li><li>Food Products Retail Trading \u2013 100%<\/li><li>Core investment company \u2013 100%<\/li><li>Multi Brand Retail Trading \u2013 15%<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Sectors_that_avert_FDI_under_Government_and_automatic_routes\"><\/span>Sectors that avert\nFDI under Government and automatic routes <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Lottery business, including private lottery, online lottery, etc.<\/li><li>Chit funds<\/li><li>Nidhi company<\/li><li>Construction companies<\/li><li>Real estate business<\/li><li>Atomic energy<\/li><li>Casinos (gambling and betting)<\/li><\/ul>\n\n\n\n<p><strong><em>Navigate to the official portal of DIPP to get the complete list\nof sectors<\/em><\/strong><\/p>\n\n\n\n<p><strong><em>The following section shows the FEMA compliance checklist that\nestablished firms and startups require complying with before going in for\nFDI.&nbsp;<\/em><\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"FEMA_compliance_Checklist_relating_to_FDI_under_Automatic_Route\"><\/span>FEMA compliance\nChecklist relating to FDI under Automatic Route<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Examine the individual\u2019s eligibility seeking to make funding via FDI.<\/li><li>Check whether the total overseas investment\/FDI is with the sectoral threshold and not under forbidden sectors.<\/li><li>Ensure that any bonus\/rights issue has not resulted in foreign direct investment surpassing the sectoral threshold.<\/li><li>Determine whether the firm has complied with the issuance of shares if any corresponding to pre-operative\/pre-incorporation expenses<\/li><li>Determine whether the directions are fulfilled while computing overall overseas investment.<\/li><li>Determine if yearly returns on overseas liabilities as well as assets are filed every year on or before 15th July. The return has to be filed even in the absence of fresh funding in the particular year.\u00a0<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"FEMA_compliance_Checklist_relating_to_FDI_under_Government_Approval_route\"><\/span>FEMA compliance\nChecklist relating to FDI under Government Approval route<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Determine whether there is any share transaction of any sort from resident to a non-resident which seeks Government authentication.<\/li><li>Determine whether prior consent of the FIBB is availed for FDI which is surpassing the sectoral threshold.<\/li><li>FEMA compliance Checklist relating to the establishment of a branch \/project office\/ liaison in India<\/li><li>Determine if the firm is carrying any task which would be considered to be a having a business place in India as Companies Act, 2013 &amp; if the compliance under CA, 2013 &amp; FEMA has duly complied.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"For_Direct_investment_taking_place_outside_India_under_Automatic_route\"><\/span>For Direct\ninvestment taking place outside India under Automatic route<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>In cases of Investment via swapping of shares, make sure that prior consent of the Government was availed. It is a mandate for making Investment via swapping of shares<\/li><li>Determine in cases where Alternative Investment Funds (AIFs)\/ Domestic Venture Capital Funds, registered with SEBI, has invested in equity &amp; equity-based instruments of off-shore venture capital undertakings, the investment is maxed out at USD 500 million.\u00a0<\/li><li>Determine whether the obligations like Annual Performance Report, reporting of remittances of the Indian party have been duly met.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Some_Other_Pivotal_Features_of_FEMA_Compliance\"><\/span>Some Other Pivotal Features of FEMA Compliance<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>FEMA shall not apply to Indian nationals residing in\noverseas nations. There is a standardized technique of determining an Indian\ncitizen&#8217;s residence. Under such a technique, the number of days spent by an\nindividual in India is calculated against the underlying norm of 182 days or\nmore. Whilst using such a technique, an office, a branch, or an agency can be\ndeemed as a person.&nbsp;<\/p>\n\n\n\n<p>FEMA confers the federal government the right to impose\nrestrictions on 3 items while also administering them. These include payment\nobtained from India, payment made to people residing outside India, and foreign\nsecurity arrangements.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>This Act increases the transparency of cross-border trade\nand improves foreign investment. The significance of FEMA filing is imperative\nfrom the global trading viewpoint and ever-evolving trading practices. Every\nstartup must refer to the FEMA Compliances checklist mentioned above before\nexposing to foreign funding. Since the penalties under FEMA are quite\nstringent, make sure to keep tabs on different fundamental thresholds relating\nto sectoral and investment.&nbsp;<\/p>\n\n\n\n<p>Let us know if you seek any clarification on FEMA Compliances checklist. We would strive to resolve them on priority and with utmost care.\u00a0 <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/learn-everything-about-fdi-compliances-under-fema\/\">Learn Everything about FDI Compliances under FEMA <\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Foreign Exchange Management Act (aka FEMA) administers the flow of overseas funds coming to India and vice versa. The Act came into effect in 1999, and apart from regulating the funds, it also laid down the FEMA compliances for corporate bodies.\u00a0Foreign Direct Investment is one of the key sources of funding for the Indian [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":32036,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[844],"tags":[1823],"acf":{"service_id":"112"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":6442,"readingTime":3,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/32023"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=32023"}],"version-history":[{"count":20,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/32023\/revisions"}],"predecessor-version":[{"id":32045,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/32023\/revisions\/32045"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/32036"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=32023"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=32023"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=32023"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}