ESOP Filing with RBI – FEMA Compliance Made Easy

RBI ESOP compliance becomes applicable whenever an Indian company issues or allots Employee Stock Options (ESOPs), Sweat Equity Shares, or other share-based benefits to non-resident employees or directors. This includes:

• Foreign nationals employed in an Indian company.

• Indian citizens residing abroad (NRIs/OCIs) who are part of the company’s workforce or board.

• Employees of an overseas subsidiary/holding company where the Indian entity extends its ESOP scheme across the group.

The compliance is triggered at two stages:

1. Grant Stage – When ESOPs are granted to a non-resident, it must be reported to RBI through the FIRMS portal in Form ESOP.

2. Exercise/Allotment Stage – When shares are actually allotted on exercise of ESOPs, companies must file Form FC-GPR within 30 days of allotment.

3. Transfer Stage (if applicable) – If ESOPs or shares are transferred between a resident and non-resident, Form FC-TRS is required.

In simple terms, any participation of a non-resident in an Indian company’s ESOP scheme requires FEMA and RBI reporting. This ensures that foreign investment into the company is legally tracked, recorded, and approved.

Non-compliance can attract FEMA penalties, delays in remittance processing, and hurdles during statutory audits or fund-raising rounds. Hence, timely ESOP filing with RBI is crucial for companies with cross-border teams.

Under the erstwhile regime, Indian company (or office / branch office) were earlier required to file a simple and prescribed statement of shares allotted or repurchased by the issuing foreign entity under ESOP at the end of each financial year. This filing requirement, however, was not applicable for ‘cashless’ ESOP.

Now, Form OPI⁶ is one single form introduced under OI Framework and this consolidates and facilitates reporting of different nature of OPI investments permitted under OI Framework.  Where the acquisition of shares under ESOP or EBS qualifies as OPI, Form OPI needs to be filed by the employer concerned. This reporting applies also for the repurchase of shares by the overseas entity. As clarified, Indian office or branch of an overseas entity or a subsidiary in India of overseas entity or the Indian entity in which the overseas entity has direct or indirect equity holding where the resident individual is an employee or director, is liable to undertake Form OPI reporting. Since OI Framework do not differentiate between cashless and cash-based ESOP or EBS, the reporting exemption previously available for cashless ESOP shall no longer be available.

Form OPI is a semi-annual reporting which needs to be reported within 60 days from the end of half-year periods ending March 31st and September 30th and therefore, to be filed by May-end and by November-end of every year, respectively. Where such investment qualifies as ODI, the resident individual concerned will need to report it in Form FC.

1. Additional Information are subject to various interpretation by the stakeholders. The rationale behind seeking these details by the regulator is not clearly known. There is neither practical guidance nor any clarifications issued as yet by the RBI. 

2. No guidance available on how the Indian companies (or office / branch office) can gather some of this sensitive information from employees. For instance, reinvestment, disinvestment (other than in nature of repurchase) and repatriation amount are essentially the personal investment details. Due to sensitivity and confidentially around such information, there may be reluctance or avoidance in sharing details by the employees.

3. In case of resident individual employees who have acquired the shares of overseas entity under ESOP or EBS resign from the Indian company (or office / branch office), obtaining certain information (like reinvestment and disinvestment) for the relevant half year may not be possible. In such cases, whether the reporting entity has an option not to furnish details of resigned employees is not clear.

4. Practically, it could be a great operational burden on Indian reporting entity (particularly, the entities operating with a large number of employees in India) to put in place an in-house system for collection of data from the employees on a half-yearly basis.

5. Indian reporting entity may not be in a position to verify accuracy of certain information (like, reinvestment, disinvestment & repatriation) provided by the employees. Practically, the employees may be required to either furnish self-declaration or documentary proofs to the reporting entity and this would involve a lot of administrative efforts between the entity and its employees.

6. For cashless ESOP/EBS which do not involve remittance of funds from India, while Form OPI reporting would still apply, disclosure of ‘remittance amount’ becomes irrelevant. Further, how to determine and disclose investment details in terms of USD and INR in this scenario requires adequate clarity.

7. In case of delay or furnishing incorrect information by the employees, the reporting entity may be held liable for filing an incorrect/inaccurate information or may be exposed to the late submission fee.

Introduction of Form OPI to facilitate consolidated reporting of all forms of OPI investment is certainly a welcoming move. However, if the rationale behind seeking aforementioned additional disclosures in said form is not clear and necessary practical guidance for completing such reporting is not provided, this can lead the concerned entities staying in a state of reporting limbo for want of guidance. Regulatory objective behind said reporting also will not be fulfilled in spirit and may have wider ramifications. Hence, the timely guidance on this matter is most critical.

While these issues are pending redressal at RBI’s level, for the half-year ended September 30, 2022, Form OPI reporting is already due by November-end. In view of this, Indian reporting entities are advised to formally approach their respective AD Bank to seek necessary clarifications. In order to ensure timely reporting, in consultation with AD Bank, the entities can file Form OPI immediately based on the extent of information available and provide a disclaimer on the limitation of information being reported.