Representation highlighting issues faced in relation to reporting of shares allotted under Employee Stock Purchase Scheme to non-resident/ foreign national employees

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Representation highlighting issues faced in relation to reporting of shares allotted under Employee Stock Purchase Scheme to non-resident/ foreign national employees

Tejasvi

@tejasvi

March 1, 2022

Public Policy

271

Employee Stock Purchase Scheme (ESPS) is a share purchase scheme whereby employees subscribe to the shares of the company, which are locked-in for a period of 1 year from the date of allotment. Unlike Employee Stock Option Plans (ESOPs), there is no grant/vesting period in case of ESPS.

The reporting requirements for any investment made in India by a person resident outside India is governed by Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 (FEMA regulations) issued by the Reserve Bank of India (RBI). For example, in case of grant of ESOPs to non-residents/ foreign nationals, a company is required to file form-ESOP with RBI within 30 days from the date of issue of employees' stock option. The company is also required to file form FC-GPR on allotment of shares to such non-residents/ foreign nationals. Once these forms are acknowledged by RBI, the non-resident/ foreign nationals are allowed to repatriate the sale proceeds out of India.

However, ESPS is not considered as an eligible instrument under FEMA regulations and there is no separate form prescribed for reporting of shares allotted under ESPS. We believe that form-ESOP will not be applicable for reporting of allotment of shares under ESPS since these are not stock option plans. Accordingly, companies are only required to file form FC-GPR on allotment of shares to non-residents/ foreign nationals. This has been the widely accepted position within the industry.

However, since May 2021, RBI has been rejecting these filings. Further, we understand that the RBI has also referred the matter to Ministry of finance (MoF) for guidance. Accordingly, reporting for grant of shares under ESPS will not be acknowledged until further guidelines are issued by MoF and RBI. This will result in delay and is against the theme of ease of doing business in India as the non-resident/foreign nationals will not be able to repatriate the sale proceeds without RBI acknowledgement.

In this regard, we have made a submission to MoF requesting them to take up the issue so that industry can complete the necessary compliance. We have suggested MoF to advise RBI to treat ESPS as an eligible instrument under FEMA and provide the required approvals. This will provide certainty to the industry.

We hope you will find the update useful. We will keep you posted on further developments in this regard.

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Tejasvi