What is FIRA & Its Importance In International Payments Withdrawal | Xflow

Expanding your business to global markets isn't a far-fetched dream in this hyper-connected world.

But hold on. The dream can quickly become a compliance nightmare. Documentation or even hearing phrases like Foreign Inward Remittance Advice (FIRA) can make receiving international payments from your global clients feel like an unsolvable puzzle. For instance, obtaining a FIRA is a legal and compliance requirement for Indian freelancers or businesses working with global clients.

The good news is that all these requirements are not as complicated as they sound.

Consider this article your compass for navigating the complexities of compliance in receiving international payments. Here, we'll delve into what FIRA is and how it assists you in your global expansion without hindering you.

FIRA stands for Forward Inward Remittance Advice. The Reserve Bank of India (RBI), the country's central bank, mandates supporting all Indian cross-border or international payments with a FIRA document.

FIRA serves as proof or record of all international payments collected in India. Think of it as a receipt that has details of the transaction. FIRA is essential for regulatory compliance, accounting, and tax purposes.

In a nutshell, FIRA confirms the reason for receiving funds from an international business in a domestic bank account [INR account or your Exchange Earners Foreign Currency (EEFC) account]. FIRA provides transparency and verifies the legitimacy of international money receivables.

It typically documents:

• The total amount received
• Payments received in foreign currencies such as USD, Pounds, SGD, and so on
• The applied exchange rate
• Sender's details and the purpose of payments

Terms like Foreign Inward Remittance Certificate (FIRC) or Non-Objection Certificates (NOCs) are often used interchangeably with FIRA.

Let's clear up the confusion.

Until 2016, AD Category I Banks (Authorized Dealer Category I Banks are RBI-licensed to provide foreign exchange services for NRIs) issued Foreign Inward Remittance Certificates (FIRC) to exporters for collecting international payments.

The FIRC was a crucial document for exporters. It was proof of payment receipt and was essential for claiming export-related incentives like tax exemptions on foreign currency payments received in India.

In 2016, the Reserve Bank of India (RBI) introduced the Export Data Processing Management System (EDPMS) to record all export-related data digitally. With the introduction of EDPMS, the RBI issued new guidelines for banks to stop issuing FIRCs for export collections. For such foreign payment collections, banks began issuing Foreign Inward Remittance Advice (FIRA).

So, does that make FIRCs redundant? The simple answer is No, it doesn't. FIRCs are now issued only for specific transactions, like receiving inward remittances from Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII).

A FIRA or an e-FIRA–the electronic equivalent—serves the same purpose for all other export collections.

The critical difference between FIRA and e-FIRA lies in the format: A FIRA is a physical document, whereas an e-FIRA is a digital version issued and managed by the EDPMS.

From a compliance and regulatory standpoint, FIRA and e-FIRA are equally valid documents. Using FIRA or e-FIRA ensures you're on the right track, compliant with regulations, and confident in your financial transactions.

e-FIRA isn't a physical document or certificate; it's a unique number issued by the Export Data Processing Management System (EDPMS).

How is e-FIRA issued?

The digital version of a FIRA replaces all the paperwork and makes international payments smoother for all the stakeholders. Here is how an e-FIRA is issued:

• Payment receipt: When you receive an international payment, the bank or financial entity records the transaction in the EDPMS.

• Submission of details: The bank or financial entity submits the details and documents related to the transaction to the EDPMS. It has all the information about the payment, such as the amount, currency, and sender's details.

• Verification: The EDPMS verifies the submitted details to ensure that they are accurate and comply with the regulations. Once the details are verified, the EDPMS generates a unique e-FIRA number for the transaction. This number serves as a digital record of the payment.

• Issuance of e-FIRA: After the unique e-FIRA number is issued, the bank or financial entity generates the e-FIRA, which you can easily download and save for further use.

The FIRA or e-FIRA helps ensure that all international payments adhere to the necessary legal standards, helping businesses avoid potential penalties:

• Compliance with guidelines: Using FIRA ensures you adhere to the Foreign Exchange Management Act (FEMA) and RBI guidelines for foreign inward remittances. Compliance with these regulations protects you from penalties and boosts your credibility with clients.

• Detailed documentation: The FIRA provides a comprehensive record of your remittance, including the amount, currency, and sender's information. This detailed documentation is essential for keeping accurate financial records and verifying the legitimacy of your international transactions.

• Essential for tax filing: When tax season comes around, having a FIRA ensures you have the documentation to report your foreign earnings accurately. You can, therefore, avoid potential legal issues and comply with tax regulations.

• Monitoring payments: The FIRA empowers you to effectively monitor the receipt of your international payments, ensuring timely funds arrival and maintaining your business's financial stability.

Now that we have learned how FIRA is relevant to your business let's familiarize ourselves with some of the terms you will encounter when you receive FIRA.

• Unique Transaction Reference Numbers (UTR): Each transaction has a unique number that makes it easy to identify payments received from different clients.

• Remitter's name and address: Details of the person or entity making the payment.

• Debtor's name and address: Information about the intermediary involved in the money transfer.

• Beneficiary's name and address: Details of the person or entity receiving the money. (You or an authorized signatory for your business)

• Non-INR amount, INR amount, and exchange rate applied: Details like the foreign currency amount, the converted INR amount, and the exchange rate used for the conversion.

• Purpose code: This indicates the reason for the transaction. For export-related transactions, the purpose code begins with the letter "P."

Xflow issues an e-FIRA as a value-added service. Every international payment withdrawal automatically includes an e-FIRA, delivered within one business day of the funds reflected in the users' INR account. With Xflow, you are on the right side of regulations and free to focus on what matters most–growing your business. Click here to learn more.

• Beneficiary - The person or entity receiving the money.

• Debtor - The intermediary is involved in transferring the money.

• EDPMS (Export Data Processing and Monitoring System) - The Reserve Bank of India (RBI) introduced a system in 2016 to digitize export data and issue e-FIRAs.

• e-FIRA - The digital version of FIRA provides a unique number for each international payment transaction.

• FDI (Foreign Direct Investment) - Long-term investments in physical assets in another country.

• FII (Foreign Institutional Investment) - Short-term investments in financial markets in another country.

• FIRA (Foreign Inward Remittance Advice) - Proof of your international payments detailing the amount, currency, and sender's information.

• FIRC (Foreign Inward Remittance Certificate) - Previously used for international payment proof, it is now mainly used for foreign direct investment (FDI) and foreign institutional investment (FII) transactions.

• FIRS (Foreign Inward Remittance Statement) - Another name, FIRA, serves the same purpose of providing proof of international payments.

• Purpose Code - A unique code that helps the government officials understand the reason for the transaction. For exports, it starts with "P".

• Remitter - The person or entity sending the payment.

• UTR (Unique Transaction Reference Number) - A unique identifier for each transaction makes it easy to track specific payments.