Incorporation of a Company with a Foreign Director in India

 You might be curious about how an Indian company can have a foreign national as a director given that India is luring more FDIs. Everything is explained in this post.

 

FDIs bring increased technology, managerial skills, and technical competence in addition to investment. India appears to be a desirable place to invest due to lenient FDI regulations, lower wages, and tax breaks.

 

First, let's define a director. A director is an intangible, unseen individual who is trusted with carrying out the obligations and functions of a firm.

 

Foreigners are eligible to serve as directors of Indian firms under the 2013 Companies Act. Foreigners are permitted to hold executive positions and non-executive/independent directorships in Indian businesses, whether they are private, public, listed, or unlisted. Similar responsibilities and obligations are held by foreign and Indian directors.

 

 

Documents Required to Incorporate a Company with a Foreign Director

 

• DSC Certificate

One must acquire a DSC to assure safe and secure electronic verification.

 

• DIN (Director's Identification Number) 

Director Identification Number (DIN): This 8-digit, the one-of-a-kind number is valid for life. All of the directors' information is entered into a database using DIN.

 

If the potential director already has a DIN, it must be provided, as was already specified above. If not, you can complete the SPICe form in the MCA portal to apply for a DIN. The only way to assign DINs to the first directors who are recommended for incorporation is through the SPICe form. 

 

Documents Required for DIN Registration

·         Passport-size Photographs

·         Mandatory Identity Proof of Foreign Nationals (A notarized and apostatized copy of passport) 

·         Address Proof (Driving License or Utility Bill)

 

• Declaration

A declaration confirming that the candidate is not ineligible to serve as a director must be provided.

 

• DIR-2

Within 30 days after the date of his or her employment, the DIR-2 (permission from Directors) form must be submitted to the ROC.

 

 

Checklist for Registering a Company with a Foreign Director

• Documents with self-attestation and the suggested director's passport that have been notarized and apostille-ed in that nation. The notary can be obtained in India if they are not available.
• If the person already has a DIN, it must be verified to see if it was obtained in accordance with legal requirements. Additionally, the information regarding directorships with other firms needs to be verified. If they do not already have one, you can apply for one in India.
• If the foreign director owns stock in the company, specific information about those shares must be provided.

 

Important Information for Company Incorporation

• Foreign directors who want to work in India full-time or as managing directors must meet this requirement (someone who has stayed in India continuously for not more than 12 months. immediately before the appointment as a director).
• They should be between the ages of 21 and 70.
• Additionally, they should not be bankrupt or convicted of a crime.
• They shouldn't receive a prison term of more than six months.
• The company's board of directors must include an Indian or an Indian resident.
• If a foreign national has knowledge or experience in a field associated with the company's operations, they may be appointed as an independent director.
• The potential director needs to have a current work visa.

 

Income of the Foreign Director is Taxable

 

Earnings received by foreign nationals who serve as directors of Indian companies are taxable under the Income Tax Act of 1961. Their commission or compensation would be reduced by the appropriate TDS in accordance with the Income Tax Act's regulations.

 

According to the Income Tax Act, a foreign national who serves as a director after a private limited company registration online in India must obtain a PAN card if they trade Rs. 2,50,000 or more in money during a fiscal year.

 

Despite the fact that it is not against the law for foreign directors to sit on an Indian board of directors, they must adhere to the rules of the Companies Act of 2013, the Income Tax Act of 1961, and the Foreign Exchange Management Act of 1999.

 

Compliance with the FEMA for a Foreign Director

The same salaries, commissions, and sitting fees as Indian directors are due to foreign nationals who are appointed as directors of Indian corporations. They must follow the rules of the Foreign Exchange Management Act of 1999 as a result.

 

Foreign nationals who wish to work as directors in India must possess a current work visa. They may open and maintain an account in foreign currency with a bank outside of India. They can choose to remit some or all of their salary for their work as directors for an Indian company.

 

When Indian companies appoint foreign directors, they are required to make a request to the authorised dealers for the transmission of their salary, along with an undertaking certificate and a declaration regarding the payment of income tax.

 

Process for Non-Resident Indians to Form a Foreign Company (NRI)

The Companies Act of 2013 mandates that the following steps be taken in order for a non-resident director to register a company:

 

Incorporation by a Non-Resident Director - The Companies Act, 2013, states that as long as one of the directors is an Indian, a non-resident director is free to incorporate a company. Both the Executive and Non-Executive Committees may have a Non-Indian Director on them.

 

At the time of company incorporation, a DIN will be given to each applicant, residents and non-residents alike. DIN requests must be submitted electronically using form DIR-3 to the Central Government.

 

Conclusion

There would surely be a wealth of new potential for Indian enterprises if they were to invite foreign nationals to engage in commercial activities and allow them to hold important positions in the office. 

 

It is a positive development that Indian legislation has dutifully formalised the necessary guidelines on the appointment of foreign directors in Indian company registration online, opening the way for several big global partnerships.