FEMA COMPLIANCE

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1. Overview of FEMA Compliance and Its Importance

FEMA compliance is crucial for ensuring the proper allocation of resources and funding during emergency and disaster situations. Compliance with FEMA policies and guidelines ensures consistency and appropriate implementation of the Public Assistance Program across all COVID-19 emergency and major disaster declarations. This includes adherence to eligibility requirements and activation timelines, as well as simplified approval processes. By following FEMA compliance standards, emergency managers and public health officials can make informed decisions and effectively respond to incidents during the ongoing COVID-19 pandemic and other disasters.

2. Eligibility Criteria for FEMA Compliance

Eligibility for FEMA assistance grants is determined by several requirements. To qualify for Public Assistance (PA), an organization must be a state, territory, tribe, local government, or certain types of private nonprofit organizations. The eligible project could be a building, public works system, equipment, or improved and maintained natural features. The costs tied directly to eligible work must be documented, authorized, necessary, and reasonable, including labor, equipment, materials, contract work, and management costs. Emergency work must be completed within six months, and permanent work must be completed within 18 months.

3. Regulatory Body for Compliance under FEMA

The Reserve Bank of India (RBI) serves as the primary regulatory body for compliance under Foreign Exchange Management Act (FEMA). The act was implemented in 1999 to regulate and monitor the inflow and outflow of foreign funds in India. The importance of FEMA filing has become more essential in recent times due to globalization and the fast pace growth of international trade investments. Its compliances include monitoring sectoral caps, investment caps, and maintaining transparency of international financial transactions. Non-compliance with FEMA regulations can result in significant penalties for corporate entities.

4. Types of Services offered for Compliance under FEMA

Meerad provides a range of professional services to handle the complexities of compliance under FEMA. These services include advice on compliance, activities applicable to NRIs, purchase of property in India, inbound and outbound investments, external commercial borrowings, and more. The company’s team of experienced professionals uses technology and process automation to provide efficient and cost-effective services to clients. They offer advice on all FEMA and RBI-related matters to ensure businesses comply with foreign exchange laws. Compliance under FEMA is crucial for international businesses to run smoothly outside India.

Companies seeking external commercial borrowings can take advantage of Meerad’s services. The company provides advice on compliance with foreign institutional investors and foreign companies to ensure that commercial loans are compliant with FEMA regulations. Meerad also offers services related to the acquisition of immovable property, exit options for foreign investors, and global business establishment under FEMA. Non-resident Indians can set up different bank accounts in India and receive loans from resident Indians or Indian companies.

Foreign investors seeking to invest in India must comply with FEMA regulations. The company provides advice on foreign direct and portfolio investments, including the automatic and approval routes. Compliance under FEMA is crucial for the success of capital transactions considered capital in nature that attract strict penalties. Foreign companies can invest in India in various modes, subject to applicable FEMA regulations and requirements. The RBI is the primary regulatory authority for foreign exchange in India, with the Companies Act 2013 and Securities Law (SEBI) also applying to transactions with companies.

Investments in certain sectors such as garments, capital goods, broadcasting, construction, and duty-free shops do not require prior approval from the government. However, investments in other sectors require government approval, and compliance under FEMA is mandatory for 100% foreign direct investment through the automatic or approval route. Meerad”s compliance services aim to provide customized, innovative solutions to clients seeking to conduct business with complete legal compliance.

5. External Commercial Borrowings (ECB) under FEMA

External Commercial Borrowings (ECB) under FEMA refer to commercial loans availed from non-resident lenders with a minimum average maturity of three years. These can be accessed under two routes: Automatic Route and Approval Route. Corporates, except financial intermediaries, are eligible to raise ECB while individuals, trusts, and non-profit making organizations cannot. The maximum amount of ECB that can be raised by a corporate in a financial year is USD 500 million or equivalent. All-in-cost ceilings for ECB are reviewed from time to time.

Eligible borrowers for FCY denominated ECB include all entities eligible to receive FDI and those eligible to raise ECB. These include corporates registered under the companies act but exclude financial intermediaries. Units in Special Economic Zones are allowed to raise ECB for their own requirement. ECB raised by manufacturing companies up to USD 50 million or its equivalent per financial year for working capital purposes or general corporate purposes will have a minimum average maturity period of one year only.

Activities for which ECB are not allowed include real estate activities, working capital purposes except as allowed specifically, and general corporate purposes except as allowed specifically. It is important to check the eligibility of lenders and borrowers before raising ECB, and the borrower is primarily responsible for ensuring compliance with the applicable ECB guidelines. The lender should be a resident of FATF or IOSCO compliant country, and individuals as lenders can only be permitted if they are foreign equity holders or for subscription to bonds/debentures listed abroad.

Foreign equity holders mean direct foreign equity holder with minimum 25% direct equity holding in the borrowing entity, indirect equity holder with minimum indirect equity holding of 51%, or group company with common overseas parent. All entities eligible to raise FCY ECB and registered entities engaged in micro-finance activities are eligible for INR denominated ECB. The minimum average maturity period for ECB is generally three years, but it will be different for specific categories. ECB structures that bypass or circumvent guidelines in any manner would also attract penal action under FEMA.

6. Property Acquisition and Exit Options under FEMA

The Hazard Mitigation Grant Program (HMGP) of FEMA provides grants to states and local governments to implement long-term hazard mitigation measures after a disaster. One of these measures is property acquisition, which is voluntary and fair compensation is given to the property owner. This is an opportunity for property owners to recoup their investments after a disaster. The land purchased through HMGP funds must be restricted to open space recreational and wetlands management uses in perpetuity.

Communities administer acquisition or buyout projects that are 75 percent funded by FEMA. FEMA does not buy properties directly from property owners. Homeowners who agree to participate in the buyout project are offered up to the fair market value of their homes before the disaster struck. A licensed appraiser hired by the community determines the fair market value, and neither party is obligated to sell their home.

The properties from completed acquisition projects funded under the Hazard Mitigation Grant Program (HMGP) are listed in an OpenFEMA dataset. The properties’ information includes the U.S. state, district, or territory associated with the project, the type of residency and structure, the percentage of damage, and the actual amount paid to the property owner. Note that the actual amount paid to mitigate the structure may or may not reflect the negotiated price based on fair market value prior to the event.

It is important to note that the data field Actual Amount Paid does not exist in HMGP-Historical and that missing values may be present when the sub-grantee or the grantee fails to provide the data or when the data is not entered into the HMGP system. The filed may be available as part of the paper file, which is considered the record of file. This dataset is not intended for official federal financial reporting.

In addition to acquisition, there are exit options available under FEMA. For example, homeowners can rehabilitate or reconstruct their homes based on the extent of damage incurred. Meanwhile, FEMA may offer displaced homeowners rental assistance, assistance with repairs, and other forms of temporary housing until they can return to their homes. This is part of FEMA’s effort to assist individuals and communities recover from natural disasters and reduce future disaster risks.

In summary, the Hazard Mitigation Grant Program (HMGP) provides an option for property owners to recoup their investments by offering fair compensation for their property. Communities administer acquisition or buyout projects that are voluntary, and both parties agreed on the price based on the fair market value. The properties from completed acquisition projects funded under the HMGP are listed in an OpenFEMA dataset. Lastly, FEMA offers exit options to affected individuals and communities to help them recover and reduce future disaster risks.

7. Establishment of Global Business under FEMA

Entrepreneurs and companies can establish their global business under FEMA to access dealing in foreign currencies and expand their customer base. The main objective of FEMA is to facilitate external trade and payments while promoting the orderly development and maintenance of the foreign exchange market in India. Transactions relating to foreign exchange have been classified under two categories, namely, Current Account Transaction and Capital Account Transaction. The Reserve Bank of India (RBI) is the regulatory authority for global business establishment under FEMA, and authorised dealers (AD) will deal with individuals/companies to liaise with the RBI for necessary requirements.

8. Valuation of Business and Shares under FEMA

Valuation is the process of evaluating the actual market price of shares, debentures, or capital instruments. Under the Foreign Exchange Management Act (FEMA), share and business valuation can be done by a SEBI registered merchant banker or a chartered accountant. The Discounted Cash Flow (DCF) method is an internationally accepted method for valuation. The transfer of capital instruments is regulated by the FEMA regulations, which require compliance with the pricing guidelines and principles of international valuation. The process requires the consent and documentation of all parties involved.

9. NRI Investments and Compliance under FEMA

NRI Investments and Compliance under FEMA are regulated under the Foreign Exchange Management Act 2000, governed by the Reserve Bank of India. NRIs or Person of Indian Origin (PIO) resident outside India are allowed to contribute to the capital of a partnership firm or sole proprietary concern without prior approval, subject to certain conditions. Proposals from foreign investors are handled by the Department of Industrial Policy & Promotion (DIPP) and reviewed by concerned Ministries/Authorities for effective processing. Non-resident entities are allowed to invest in India either under the Automatic or Government Approval Route.

Foreign investment into India is divided into two categories – Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI). While both are regulated under FEMA, FDI policy is more stringent and requires compliance on various fronts. FDI attracts penal provisions for any violation of its regulations. Various categories of foreign investors including FIIs, FPIs, Foreign Venture Capital Investors, and Non-Resident Indians can hold stakes in Indian business entities subject to conditions and sectoral caps on ownerships. FIIs/FPIs are allowed to invest and trade in equity securities with a maximum total investment of 24 percent of the issued and paid-up capital of the company.

FDI in Limited Liability Partnerships (LLPs) was liberalized significantly in 2015, allowing up to 100% FDI subject to specific sectoral limits. LLPs can make further downstream investments in another company or LLP and repatriation of capital is permissible adhering to appropriate pricing guidelines and reporting requirements. However, investments should comply with relevant sectoral caps and regulations under FEMA. RBI administers FEMA and the Directorate of Enforcement has the authority to investigate any violation of its rules.

The Foreign Exchange Management (Deposit) Regulations 2016 regulate deposits between a person resident in India and a person resident outside India. These regulations may be called the Foreign Exchange Management (Deposit) Regulations 2016. Authorised dealer and authorised bank are two key components of these regulations that define permissible currency, deposit, and various types of accounts such as FCNR (B) account, NRE account, NRO account, and SNRR account. However, no person resident in India shall accept or make any deposit with a person resident outside India, unless provisioned otherwise under the regulations or on application made to and approved by the Reserve Bank.

10. Substantial Compliance under the Provisions of FEMA

The Federal Emergency Management Agency (FEMA) has issued an interim policy to define the framework details and requirements for determining the eligibility of work and costs under its Public Assistance Program (PA). This policy aims to ensure consistent and appropriate implementation across all COVID-19 emergency and major disaster declarations. The assistance provided is subject to PA Program requirements as defined in Version 3.1 of the Public Assistance Program and Policy Guide (PAPPG). The policy also supersedes the FEMA Fact Sheet issued on March 19, 2020, and will be updated or revised according to the changes in the COVID-19 pandemic status.

FEMA’s recently issued interim policy provides standardized activation timelines, milestones, and initial and continuing eligibility criteria for its disaster assistance applicants. It also simplifies activation request and approval processes. This policy supersedes FEMA’s previously issued disaster-specific and interim policies and applies to disasters declared on or after August 22, 2020. The policy has been developed after reviewing lessons learned from previous transitional sheltering assistance activations and the current coronavirus pandemic. It aims to provide consistent and appropriate implementation of FEMA’s assistance programs across jurisdictions.

FEMA has issued a guidance document for developing mass care and emergency assistance plans for a pandemic scenario. This document outlines the unique considerations faced by jurisdictions – local, state, tribe, or territory insular area, and federal government – during such situations and the processes they can implement without federal assistance or when it is available. The guidance intends to facilitate a coordinated and seamless response, even when FEMA assistance is not required.

FEMA, along with other federal agencies, has initiated the distribution of non-contact infrared thermometers (NCIT) to support the phased reopening of the nation’s workplaces and the restarting of the American economy. This effort aims to limit the spread of coronavirus (COVID-19) and ensure the safety of the workers. FEMA has distributed NCITs to various organizations and businesses across the country.

FEMA has initiated a program to provide personal protective equipment (PPE) to over 15,400 Medicare and Medicaid-certified nursing homes across the nation, including all 50 states, the District of Columbia, Puerto Rico, and Guam. The White House Task Force has taken the lead in delivering two shipments, totalling a 14-day supply of PPE, to these facilities to ensure the protection of the vulnerable population from COVID-19.

FEMA has released guidance to help state, local, tribal, and territorial (SLTT) emergency managers and public health officials respond to incidents during the 2020 hurricane season amid the COVID-19 pandemic. The guidance comprises two main sections – response planning and recovery planning – and provide detailed information on FEMA’s operating posture and guidance for SLTT governments. The guidance aims to ensure that the pandemic does not hamper the SLTT governments’ response in providing critical assistance during disasters.

The federal government has initiated an expansion of the manufacturing line of effort to increase the manufacturing production capacity of critical medical supplies and equipment needed to address supply shortages. The effort aims to ensure the availability of essential medical supplies and equipment during the pandemic and to support the healthcare workers’ safety. The move has been lauded for its strategic importance in the fight against COVID-19.

The President’s Guidelines for Opening America Up Again dictate that states should meet at least five metrics before proceeding to a phased reopening. These metrics include demonstrating a downward trajectory of COVID-19 cases over a 14-day period, maintaining a robust system for testing healthcare workers, and more. The Administration’s Opening Up America Again Testing Overview and Testing Blueprint facilitates state development and implementation of robust testing plans and rapid response programs. The initiative supports the safe reopening of the American economy amid the pandemic.

FEMA has released a technical assistance fact sheet for healthcare personnel using the Critical Care Decontamination System (CCDS). The system aims to improve PPE availability by reducing, reusing, and repurposing contaminated PPE during the pandemic. The fact sheet provides site requirements and steps to acquire and use the CCDS, which can help communities meet critical PPE needs and support their healthcare workers’ safety.

FEMA, along with other federal agencies, is distributing cloth facial coverings to non-medical care workers. The move is part of a multi-prong approach to re-open American economic activity while continuing to limit the spread of COVID-19. The fact sheet explains the National Resource Prioritization cell, which aims to ensure that resources are appropriately distributed where they are needed the most during the pandemic. The initiative has been praised for its comprehensive strategic approach towards reopening the economy.