Transfer of shares between two non-residents

FEMA nuance: Transfer of shares between two non-residents, often overlooked

When shares are moved between a resident and a non-resident or vice versa, FC-TRS reporting through the AD Banker to RBI is a mandatory practice.

But what happens when the transfer is between two non-residents?

At first glance, there’s no explicit reporting requirement, however, the complexity surfaces during subsequent corporate actions like bonus or rights issues.

In such cases, while filing FC-GPR for any subsequent corporate actions like bonus or rights, we typically rely on initial RBI approvals that granted the original shareholder the right to subscribe. Now, if shares have been transferred inter se non-residents, the new shareholder becomes entitled to such rights, but the original RBI approval does not reflect this change.

This mismatch often leads to:

1. Resubmission queries

2. Delays in approval timelines

3. Potential breach of statutory timelines

4. Triggering of Late Submission Fees (LSF)

The main issue is this: In cases where delays arise due to inconsistencies between the initial FC-GPR and subsequent transfers inter se non-resident, primarily because such transfers do not have a prescribed reporting requirement, LSF may get triggered. Since LSF is computed based on the amount involved in the transaction, which, for shares, is derived from their FMV, we may end up needing a valuation even in situations like bonus or rights issues, where the Companies Act 2013 does not otherwise require one.

Practical approach suggested by FEMA experts: Even though not mandatory, it is advisable to:

1. Make a plain paper intimation to RBI through the AD Banker for transfers between non-residents. 

2. Attach this acknowledgment while filing FC-GPR for subsequent corporate actions.

This can significantly reduce approval friction and LSF exposure.