Regulatory Compliances for Foreign Investors Investing in India


India is experiencing rapid development in various industrial segments, owing to the massive improvement in the infrastructure and growing consumer demand. Consequently, the country has emerged as a hub for foreign investments promising profitable returns.

However, foreign organisations willing to enter the Indian market must necessarily abide by a list of regulatory compliances to conduct business in the country. These compliances cover a number of areas like registration, organizational policies, FDI mandatory compliances, and more.

regulatory compliances

Often, due to the complex registration and legal requirements, fulfilling the regulatory compliances becomes a cumbersome task for foreign investors. As a result, most investors prefer collaborating with business consulting companies in India to understand the existing and evolving statutory requirements.

Here is a brief overview of some of the regulatory compliances that foreign investors must keep in mind while framing their market-entry strategy.

What is FDI in India & Regulatory Compliance Under FEMA Act

  •  FDI in India

Foreign Direct Investment or FDI is a significant non-debt monetary source for India that attracts direct involvement of foreign firms in various industries of the country. In fact, as per the Department for Promotion of Industry and Internal Trade (DPIIT), India’s FDI equity inflow stood at USD529.63 billion between April 2000 and March 2021.  However, FDI varies across the different sectors in the country, like:

o Auto-components: 100% FDI through automatic route
o Insurance Sector: 26% FDI in automatic route
o Medical Devices: up to 100% FDI permissible through automatic route and more.

FEMA or Foreign Exchange Management Act, 1999 (FEMA) was introduced by the Indian Government to ensure a smooth transaction and maintenance of FDI and encourage foreign investment in the country.

Some mandatory compliances under FEMA include:

  • Annual Return on Foreign Liabilities and Assets

Every company that has made an FDI in the Indian industrial sector must necessarily submit an FLA or Foreign Liabilities and Assets Return. Such returns must be submitted every year.

  • Annual Performance Report

All resident companies in India who have undertaken an ODI or Overseas Direct Investment must submit an annual performance report on or before 31st December every year. This annual performance report should be provided in Form ODI Part II to the Authorised Dealer or AD bank regarding the Joint Ventures or Wholly Owned Subsidiaries outside India.

  • External Commercial Borrowings (ECB)

All eligible entities in India that have shouldered a debt from a non-resident entity must report all External Commercial Borrowings or ECB transactions to the RBI. The ECB reports must be submitted through an AD Category 1 Bank in the Form ‘ECB 2 Return’ every month.

Reporting Establishment of Business in India with E-FORM FC-1 and Financial Statements E-FORM FC-3

Establishment of Business in India

After establishing their business in Indian industrial sectors, all foreign companies must adhere to certain important corporate regulatory compliance India prescribed under the Companies Act, 2013 and Companies (Registration of Foreign Companies) Rules, 2014. These include:

  • Report Establishment of Business India| E-FORM FC-1

The rule states that all foreign companies registered in India must file an E-Form FC-1 with the Registrar of Companies within 30 days of its establishment. The E-Form FC1 must also have all the required documents prescribed under the provisions of sub-section (1) of section 380.

The application should also be supported by an attested copy of approval from the RBI under FEMA Regulations.

  • Report on Financial Statements | E-FORM FC-3

Every foreign company investing in India must prepare and file financial statements within 6 months of the close of the financial year with the Registrar of companies in E-Form FC-3. The foreign firms should also prepare and file a list of places of business in India established in the same form. Also, all such financial statements must be in accordance with Schedule III of the Companies Act, 2013.

In order to better understand the rules and regulations of these corporate compliances, foreign firms must avail the assistance of top global market entry and expansion solutions providers in India.

Areas of Regulatory Compliances for an Organisation in India

Areas of Regulatory Compliances for an Organisation in India
  • Organisational Transparency

The Companies Act, 2013 requires all foreign companies to maintain transparency of all organisational records, accounts, and data. Hence, foreign investors must necessarily abide by all the sections of the act which involves Formation of the Company (Section 3), Ensuring proper details for public offerings (S.23), Maintaining Books of Accounts (S.128), Appointment of Auditor (S.139), etc.

  • Environment Protection Compliance

Foreign companies must also comply with all the environmental laws enacted by the Indian Government to help check the air and water pollution. These include Indian Forest Act, 1927; Environment Protection Act, 1986; the Forest (Conservation) Act, 1980; Storage and Import of Hazardous Chemical Rules, 1989, etc.

  • Labour/Workmen Welfare

In order to protect the rights of workmen and ensure labour welfare, the Indian Government has formulated certain regulations under various acts that all foreign organisations investing in the country must follow.

These include The Workmen’s Compensation Act, 1923; the Trade Union Act, 1926; The Industrial Disputes Act, 1947; the Maternity Benefits Act, 1961; etc.

Need for Top Global Regulatory Companies in India

As can be deduced from the above section, foreign investors need to abide by a range of regulatory requirements while investing in the Indian industrial sector. In fact, understanding the various corporate compliances is a significant aspect of framing India-specific market entry strategy.

However, without detailed insights into the legal requirements, foreign investors may face undue delays in executing their business objectives in the country. Further, it often leads to undue financial losses.

To avoid such consequences, foreign investors must opt for the assistance of a leading global market entry and expansion solutions provider like Tecnova.

With detailed market insight and trained experts, top global regulatory companies in India and business consulting companies in India offer end-to-end regulatory support services, which include:

  • Investment route planning in line with FDI.
  • Obtaining all indirect and direct tax registration numbers.
  • All statutory and regulatory compliance services, which included SVB licensing and license approval.
  • Post-incorporation assistance like preparing and filing of all requisite forms and annual returns, etc.

Such comprehensive assistance eases the market-entry process for foreign organisations, ensuring sustainability and growth.

In order to enjoy profitable business returns and consolidate a position in the Indian industrial sector, it is imperative for foreign organisations to understand and follow all the essential regulatory compliances.

Hence, it is highly advisable that foreign organisations collaborate with leading business consulting companies in India to frame the right structure to enter the Indian market and secure the right legal process for the organisation.

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