An Indian entity can be set up with an overseas director in India under the Companies Act, 2013. The BODs manage the core affairs of the company. The board of a company can entail Indian as well as foreign nationals. But, an Indian entity must have at least one director from the Indian Territory.
Foreign directors cannot solely run the company’s affairs as board members in India. Legally, an Indian company can appoint a foreign national as an independent director or executive.
Director under Companies Act, 2013
The Companies Act, 2013[1] specifies a director as an individual appointed to the company’s board. The directors administer the business affairs and are the spearhead of a company. The company directors are collectively called the BODs, i.e. Board of Directors.
The company board is also liable for safeguarding the shareholders’ interests. Under the Act, an individual can be appointed to serve the following types of directorship positions in a company:
- Managing director
- Whole-time director
- Independent director
- Small shareholders director
- Additional director
- Alternative director
- Nominee director
The Act does not impose any limitation that prevents foreign nationals from becoming the director of an Indian company. Therefore, they can serve any of the aforementioned directorship positions in the Indian company.
Conditions for becoming a Foreign Director
The conditions that need to be met by a foreign national to become a director in an Indian entity are as follows;
Director Identification Number (DIN)
- Every person intending to become a director in an Indian entity needs to secure a DIN, i.e. Director Identification Number, at the time of incorporation.
- A foreign national must secure a Director Identification Number before being appointed as director of an Indian company.
- Form DIR-3 is used for filing the application for DIN with the MCA, i.e. Ministry of Corporate Affairs. Foreign national is also obligated to apply for DIN in the SPICe+ form.
- The applicant should furnish the declaration evidencing that the proposed director has not been disqualified under the Act.
- The foreign national also requires filing form DIR-2 with MCA before discharging the duties upon successful appointment.
- The foreign national is liable to share his written consent with the concerned ROC within thirty days of his appointment.
Common documents required for securing a DIN
- Photograph
- Address proof such as DL, latest utility bill, and bank statement
- Passport
- The copies of the above documentation must be attested by a Public notary and be attested by the authority concerned in their nation of residence.
Digital Signature Certificate (DSC)
The foreign nationals appointed as directors must secure a Class 3 DSC. The Digital Signature Certificate is required to e-sign the online form. The foreign national is also required to affix the said DSC on the DIR-3 form or Spice+ from for securing the DIN.
Following are standard paperwork required for securing DSC
- Photograph
- Address proof such as DL, latest utility bill, and bank statement
- Passport
- The copies of the above documentation must be attested by a Public notary and be attested by the authority concerned in their nation of residence.
Managing Director or Whole-Time Director requirement
Foreign nationals seeking to hold the position of whole-time directors or managing directors in Indian companies must have stayed in India continually for not less than 12 months immediately before the date of appointment as director.
There is an age criterion in this context that every foreign national should comply with. According to the Act, the applicant’s age should not be less than 21 years and more than 75 years.
Also, being insolvent or convicted shall prevent such an applicant from qualifying for such a position.
Independent Director Requirement
The independent director position is only available to foreign nationals who possess the required skill set, experience, education and qualification in one or multiple fields of law, finance, sales, marketing, research and administration related to the company’s business.
FEMA Norms for a Foreign Director
A foreign national serving the position of directorship in an Indian company qualifies for receiving remuneration, commission and sitting charges, just like Indian directors. Therefore, they must comply with the Foreign Exchange Management Act (‘FEMA’), 1999.
Foreign nationals seeking to become a director should hold a legitimate employment visa. They are eligible for holding a foreign currency account with a designated bank operating abroad.
Also, they qualify for remitting or receiving the whole salary credited to them for their services.
When the Indian entity appoints a foreign director, the latter should apply for remittance of their remuneration to the valid dealers with an undertaking certificate and statement about payment of Income Tax .
Taxability on Foreign Director’s income
The income reaped by a foreign national attracts taxes under the IT Act, 1961. The required TDS (Tax deduction at source) shall be deducted from their remuneration or commission as per the IT Act’s norms.
Under the IT Act, foreign nationals serving the position of a director are liable to obtain a PAN card in case their threshold of a financial transaction is equal to or more than Rs.2 50,000 in a given FY.
Conclusion
The appointment of a overseas national as a director in an Indian company is subjected to heaps of compliance. The Companies Act, 2013 is the prime legislation that oversees and regulates such subject matters. The foreign director in an Indian company is liable to meet several compliances such as timely filing of taxes, constituting a CSR committee, whenever the turnover threshold surpasses the prescribed limit and filing key forms with MCA.
Read our Article:Company Incorporation by Non-Resident Director
