RBI Rules for Foreign Subsidiary Companies in India

The Reserve Bank of India (RBI) has certain rules for foreign companies operating in India or Indian companies with foreign investors. These rules ensure smooth business operations while following Foreign Exchange Management Act (FEMA) and Foreign Direct Investment (FDI) guidelines.

Compliance requirements for subsidiary Companies

1. Foreign Direct Investment (FDI) Rules

• Foreign investment in Indian companies is allowed under two routes:

1. Automatic Route : No prior approval needed.
2. Government Route : Needs approval from the government.

• Different business sectors have limits on how much foreign investment is allowed.

2. Reporting Requirements (Important Forms to be Filed)

Foreign subsidiaries and Indian companies with foreign investments must file specific reports with RBI:

• FC-GPR (Foreign Currency-Gross Provisional Return) : If a company issues shares to a foreign investor, it must report this to RBI within 30 days.
• FC-TRS (Foreign Currency-Transfer of Shares) : When an Indian resident transfers shares of a foreign subsidiary to a non-resident (or vice versa), this form must be submitted within 60 days.
• FLA Return (Foreign Liabilities and Assets Return) : If an Indian company receives foreign investment, it must submit details of its foreign assets and liabilities to RBI by July 15 every year.
• ECB (External Commercial Borrowings) Reporting : If the company takes a loan from outside India, it must follow RBI’s ECB rules and report the details.

3. Share Pricing Rules

• When shares are bought or sold between residents and non-residents, they must follow fair market valuation rules.
• The price of shares must be determined by a certified professional like a chartered accountant or SEBI-registered merchant banker.

4. Sending Money (Profits, Dividends) Outside India

• Foreign companies in India can send their profits back to their parent company, but they must follow tax laws and FEMA regulations.
• If they make any payments to their parent company or related businesses abroad, they must follow transfer pricing rules to prevent unfair pricing.