Transactions involving non-resident investors may include complex reporting requirements in the context of compliance with the Foreign Exchange Management Act (FEMA). One such scenario arises when multiple resident shareholders sell their equity stake in an Indian private limited company to a non-resident buyer. This process necessitates multiple FCTRS (Foreign Currency Transfer of Shares) filings, making documentation and coordination challenging.
In this article, we explore an efficient approach to streamlining the FCTRS filing process ensuring timely compliance, and reducing the possibility of late submission costs.
If 10 resident shareholders hold 100% equity shares in an Indian private limited company and enter into a deal with a non-resident buyer, the transaction involves multiple inward remittances, one for each seller.
This will require 10 FCTRS filing and thus a lot of effort on the documentation and coordination across sellers. Delays in submission can lead to a levy of a late submission fee (LSF), adding a compliance burden.
To streamline the process and minimize compliance risks, the following RBI-approved solution can be implemented:
- Inward Remittance:
The non-resident buyer can send a single inward remittance for the total consideration amount to Citi’s Nostro account. The remittance should be accompanied by an MT 199 message specifying a seller-wise breakup of funds.
- KYC Compliance:
The buyer should receive a KYC telex from the remitting bank. Numerous submissions are unnecessary; a single KYC telex is sufficient for the entire transaction.
- Funds transfer to respective sellers:
The investee company must submit the following documents:
- FCTRS declaration.
- CA Certificate confirming automatic route and sectoral cap.
- Investor's shareholding details.
- Power of Attorney (POA) from respective sellers for doing FCTRS Filing.
Citi India would disburse the money to the appropriate sellers locally after receiving the MT 199 message.
- After receiving RBI approval, the banks submit a single consolidated FCTRS report, which typically takes 2 to 3 days.
- The bank issues Foreign Inward Remittance Certificates (FIRCs) and provides the remitter’s KYC for record-keeping.
- The Indian investee company initiates the consolidated FCTRS reporting with all supporting documents as per the Single Master Form (SMF) user manual.
Navigating FEMA compliance in share transfers and FCTRS filing can be challenging, particularly when transferring shares to non-residents through several sellers. At KDP Accountants, we have extensive experience seamlessly handling such transactions.
- Expert assistance in FCTRS filing
- RBI Compliance and approvals
- End-to-end Support
With our expertise, Indian businesses and foreign investors can ensure hassle-free share transfers while staying fully compliant with RBI and FEMA regulations.
