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ANNUAL PERFORMANCE REPORT for foreign entities





Introduction


The Foreign Exchange Management Act (FEMA) is the critical piece of legislation in India, regulating foreign exchange transactions, investments, and payments. It encompasses various aspects of international financial dealings, including the requirement for companies to submit a mandatory Annual Performance Report (APR).


It was introduced in 1999 to replace the previous Foreign Exchange Regulation Act (FERA) and is aimed at facilitating external trade and payments and promoting orderly development and maintenance of the foreign exchange market in India.


Here, we will explore the importance of the APR report, frequency, due date, Penalties, its relation to audited financial statements, and recent amendments that impact this requirement.


Understanding the Annual Performance Report (APR)


The Annual Performance Report (APR) is a crucial document required under FEMA for monitoring and regulating foreign investments and ensuring compliance with FEMA regulations. It is essentially a comprehensive report that provides details on the financial and operational performance of the company to its foreign investors.


Key aspects of the Annual Performance Report:



  1. Reporting Requirement: It is mandatory for investment made outside India by resident Individual, and resident non Individual (both) for Investment in Joint ventures (JV), Wholly owned subsidiary(WOS) both outside India.

  2. Frequency and Due Date: The APR must be submitted annually. The due date for filing the APR is December 31st each year. Non filling of APR up to December 31st every year be treated as violation under FEMA and late submission fees (LSF) as per overseas Direct Investment Regulations shall apply.

  3. Contents of APR: The Annual Performance Report contains various financial and operational details, including:

     ・Audited Financial Statements: This includes the balance sheet,                    

      profit and loss account, and cash flow statement, all prepared in   

      accordance with Indian Accounting Standards (Ind AS) or  

      Generally Accepted Accounting Principles (GAAP) in India.

     ・Details of Foreign Investments: Information on the inflow and      

      outflow of foreign funds, sector-wise allocation of FDI, details of

      foreign subsidiaries or joint ventures, and any repatriation of

      funds.

     ・Compliance with FEMA Regulations: Confirmation of compliance

      with FEMA provisions and regulations concerning foreign

      investments, sectoral caps, and investment routes.

 4. Submission Process: The APR must be submitted offline. The reporting entity is responsible for ensuring the accuracy and completeness of the information provided.

5. Penalties for Non-Compliance: Non-compliance with the submission of the APR or providing inaccurate information can result in penalties and enforcement actions by the RBI or the Directorate of Enforcement. The Late submission fees for filing of ODI Part-II/APR is 7,500 INR.


Audited Financial Statement of Foreign Entity



The amendment in the Foreign Exchange Management (Overseas Investment) Regulations, 2022 has made it mandatory for the Indian investors to submit an APR based on the audited financial statements of the foreign entity, where they have control and equity holding of 10% or more.

This is a significant change from the previous requirement, where the APR could be based on the unaudited financial statements certified by the statutory auditor of the Indian entity or by the chartered accountant. It is important to note that audit shall be required where Indian resident has control even if the host country does not mandate it.

The amendment aims to ensure that the overseas investment activities are reported accurately and transparently, and that there is no violation or misuse of foreign exchange by the Indian investors.


Conclusion


The Foreign Management Act and the Annual Performance Report work hand in hand to create a balanced and transparent environment for foreign investments. By regulating foreign investments and annually assessing their performance, countries can attract investments that promote economic growth while safeguarding national interests.


The APR is an essential tool for monitoring foreign investments and making informed decisions about future policies and regulatory adjustments, ensuring that foreign investments benefit the host country in a meaningful way. In an era of increased scrutiny and the demand for accountability, the APR serves as a beacon of transparency and openness.

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