Appointment of Foreign Director
Appointment of Foreign Directors/NRI in Indian Companies
Foreign nationals are allowed to become Directors of an Indian Private Limited Company. The Board of Directors of the Indian Private Limited Company must have one Director who is both an Indian Citizen and Indian Resident as per companies Act, 2013.
In this article, we are going to discuss Criteria for appointment, Eligibility, Process, Documents required, Compliances under FEMA and Taxes on Income earned as a foreign director in an Indian company.
The companies Act provides that only individuals can be appointed as directors of the company and no artificial person can be appointed as a director.
However, The Act does not impose any restriction on the appointment of non-residents as directors of the company. Accordingly, Non-residents can be appointed as directors.
As per Section 149(3) of the Companies Act, every company shall have at least one director who has stayed in India for a total period of 182 days or more in the previous calendar year.
Therefore, The Board of a company can comprise both Indian residents and foreign nationals. However, every company must have at least one director who is an Indian resident. The Board cannot contain only foreign directors.
Criteria for appointing Non-resident or foreign national as director in an Indian Company
The criteria that need to be fulfilled by a foreign national to become a director in an Indian company is as follows:
1. Director Identification Number (DIN)
- DIN is a unique identification number allotted to any individual who is intending to appoint as a director in any company. Every person proposed to be a director in an Indian company needs to obtain a Director Identification Number (DIN) before the appointment
2. Digital Signature Certificate (DSC)
- The digital equivalent of a handwritten signature or a stamped seal at the time offers far more inherent security. A digital signature is intended to solve the problem of tampering and impersonation in digital communications.
- Every NRI or foreign national appointed as a director in an Indian company needs to have a Class 3 Digital Signature Certificate (DSC).
- Every person proposed to appoint as director of the company is required to furnish a declaration to the company that he is not disqualified u/s 164 of the Companies Act, 2013.
4. Written Consent to Registrar:
- Every NRI proposed to be appointed as a director is required to furnish his written consent to act as a director.
Eligibility criteria to appoint as director:
As per Section 164 of the Companies Act, 2013, a person shall not be eligible to appoint as director of the company if satisfies any of the following conditions:
- He is of unsound mind and same has been declared by a Competent court;
- He is an undischarged insolvent;
- The person who applied to be adjudicated as insolvent and his application is pending
- Any person who has been convicted of any offense and sentenced to imprisonment for not less than 6 months and a period of 5 years have not expired from the date of expiry of the sentence;
- The person should be between the ages of 21 and 70.
Documents required for appointment as director:
An NRI is required to provide the following documents to file an application for allotment of DIN:
- Proof of Identity: Passport, mandatory;
- Proof of residence: Address proof should not be older than 1 year from the date of filing of the eForm.
- Translation: In case of proofs that are in languages other than Hindi / English, the proofs should be translated into Hindi / English by a professional translator carrying his details (name, signature, address) and seal. Further, In the case of foreign nationals, translation done by the notary of the home country is also acceptable.
- Attestation: In case, the director is residing outside India, then the attached supporting documents should be attested by the Consulate of the Indian Embassy, a Foreign public notary.
Compliances Under FEMA For a Foreign Director
- A foreign national appointed as a director in an Indian company is eligible for receiving remuneration, commission, and sitting fees like Indian directors. Thus, they must follow the provisions of the Foreign Exchange Management Act (‘FEMA’), 1999.
- Foreign nationals intending to be a director in an Indian company should hold a valid employment visa. They can maintain and hold a foreign currency account with a bank located outside India.
- They can remit or receive the whole salary paid to them for their services as directors in an Indian company.
- When Indian companies appoint foreign directors, the Indian companies should make an application for remittance of their remuneration to the authorized dealers with an undertaking certificate and statement regarding payment of Income Tax.
Income tax on Income earned by Foreign National as director
- The income earned by a foreign national as a director of an Indian company is received and earned in India and therefore, the same is taxable under the Income Tax Act, of 1961.
- The Company is required to deduct on commission or remuneration as per the provisions of the Income Tax Act.
- Under the Income Tax Act, a foreign national who is a director in an Indian company must obtain a PAN card mandatorily if he/she is having a financial transaction of Rs.2,50,000 or more in a financial year.
- Though there is no bar on the appointment of foreign directors in an Indian company, they must follow the provisions under the Companies Act, 2013, Income Tax Act, 1961, and FEMA, 1999.
Following procedure is to be followed for appointing a director in an Indian company:-
- Convene a Meeting of Board of Directors [As per section 173 & Secretarial Standard-1 (SS-1)].
- Consent and Declaration from the Proposed Director.
- Obtaining DIN and Digital Signature Certificate [Section 153].
- Convene General Meeting (Section 96, 100 and Secretarial Standard-2 (SS-2)].
- Obtain Form MBP-1 from the Appointed Director.
- Filing of Return of Appointment of Director with the ROC [Section 152(2) and Rule 8 of the Companies (Appointment and Qualifications of Directors) Rules, 2014].
- Making Necessary entries in Register of Directors.
- File Necessary Amendment Application under following Acts.
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