Appointment of foreign national as a director in an Indian Company
As per the Companies Act, 2013, the Act does not restrict foreign individuals to become a director in the company situated in India. The foreign individual or non-resident Indians residing out of India can become an executive or a non-executive/independent director of Indian companies whether public listed or unlisted or private.
As per section 2(34) of the Companies Act 2013, the “director” means a director appointed to the Board of a company.
The foreign individuals or a non-resident Indian can be appointed as a Director in the Company by complying with the Act read along with the Companies (Appointment and Qualifications of Directors) Rules, 2014. A foreign national can be appointed to the positions of Women Director, Independent Director, Small Shareholders Director, Additional Director, Alternative and Nominee Director in Indian Companies.
The foreign national or a non-resident Indian can also be appointed as a Whole Time Director (“WTD”) or Managing Director (“MD”) subject to the compliance of rules given in Part 1 of Schedule V of the Companies Act, 2013 which defines the qualification for appointment of a Managing or Whole Time Director or a Manager without the approval of Central Government.
One of the conditions of Part 1 of schedule V of the Act states that a person appointed as whole time director or managing director should be a resident of India.
“Explanation I.—For the purpose of Schedule V, resident in India includes a person who has been staying in India for a continuous period of not less than twelve months immediately preceding the date of his appointment as a managerial person and who has come to stay in India,—
(i) for taking up an employment in India; or
(ii) for carrying on a business or vacation in India.
Explanation II.—This condition shall not apply to the companies in Special Economic Zones as notified by Department of Commerce from time to time:
Provided that a person, being a non-resident in India shall enter India only after obtaining a proper Employment Visa from the concerned Indian mission abroad. For this purpose, such person shall be required to furnish, along with the visa application form, profile of the company, the principal employer and terms and conditions of such person’s appointment.”
In case the conditions under Schedule V are not satisfied, prior permission of the Central Government has to be taken in the e form MR-2 for the appointment as a Whole time director or Managing Director.
Companies Act 2013:
The Act does not allow for a permanent resident / foreigner. As per Section 1 of Schedule V of the Act, anybody (including an Indian citizen) who has lived in India for a cumulative duration of less than 182 days in the preceding calendar year will be considered as a foreign national.
Foreign Exchange Management Act 1999:
A foreign national is one who has stayed outside India for more than 182 days for employment or for carrying on a business or for any other purpose for an uncertain period of time.
According to the statute, a foreign national is defined as under:
Section 2 (4) – If any individual stays in India for more than 182 days during course of preceding financial year he will be treated as person resident in India.
There are few exceptions are under:
(a) if a person goes/stays outside India for taking up employment or carrying on business or any other purpose for an uncertain period, he will be treated as a person resident outside India; or
(b) If a person who is residing abroad comes to stays in India only for taking up employment or carrying on business or any other purpose for an uncertain period; he will be treated as a person resident outside India.
1. Digital Signature Certificate to be obtained by providing the proof of address and proof of Identity (passport).
2. Director Identification Number (DIN) to be obtained prior to such appointment as a Director;
3. A declaration to be made by the proposed foreign Director that he is not disqualified from becoming a Director under Section 152 of Companies Act, 2013; and
4. The proposed foreign national Director has to provide a written consent to act as director in Form DIR-2.
5/ Filing of form DIR-12 with the Registrar within 30 days of his appointment the Board meeting of the Company.
The digital equivalent of a handwritten signature or a stamped seal and at the time offers far more inherent security. A digital signature is intended to solve problem of tampering and impersonation in digital communications. Digital signatures can provide the added assurances of evidence to origin, identity and status of an electronic document, transaction or message as well as acknowledging informed consent by the signer.
DIN is a unique Identification Number allotted to an individual who is appointed as a director of a company, upon making an application in form DIR-3 pursuant to section 153 & 154 of the Companies Act, 2013 to the Central Government.
Any person intending to become a director in an existing company shall file form DIR-3 and the same gets processed by Central Government (Office of Regional Director (Northern Region), Ministry of Corporate Affairs).
Any person intending to become a director in a new Company is required to apply for the allotment of Director Identification Number only through SPICe eform at the time of incorporation.
Any person intending to become a director in an existing company shall have to make an application in eForm DIR-3 for allotment of DIN and should follow the following procedure:
DIN application fee of Rs. 500/- is payable.
All supporting documents including photograph should be certified by the Indian Embassy or a notary in the home country of the applicant. If a foreign director has a valid multiple-entry Indian visa or Person of Indian Origin card or Overseas Citizen of India card, then the attestation could also be done by Public Notary / Gazetted Officer in India.
A provisional DIN is approved only after scrutiny of the documents attached with the application. Some of the common mistakes committed by applicants and on account of which the DIN application gets rejected are as under:
1. Non-submission of supporting documents;
2. Invalid application/supporting documents:
* DIN application if rejected has to be freshly filed.
4. Written Consent to Registrar:
The proposed Foreign National Director has to provide a written consent to act as director in Form DIR-2 and that to be filed with the Registrar within 30 days of his appointment. After this process only, he can act as a Director of the Company.
Remuneration to Non-Residents:
Foreign Directors are liable to pay applicable income tax when they receive income. Foreign Directors can provide technical services for the Indian companies in which they are directors. Any payment of remuneration to Foreign Directors is subject to Income Tax.
If the foreign national is employed in India, the required TDS has to be reduced from the remuneration payable to him in accordance with Section 192 of the Income Tax Act. In case any payment is to be made to Non-Resident, other than remuneration (in accordance with Section 195), TDS of 10% has to be deducted.
In case foreign nationals are paid any commission or remuneration, it is subject to deduction of applicable tax.
Notary Charges for documents:
Notary Act 1952 –
Section 14 – Reciprocal arrangements for the recognition of notarial acts done by foreign notaries
If the Central Government is satisfied that by the law or practice of any country or place outside India, the notarial acts done by notaries within India are recognised for all or any limited purposes in that country or place, the Central Government may, by notification in the Official Gazette, declare that the notarial acts lawfully done by notaries within such country or place shall be recognised within India for all purposes ore, as the case may e, for the limited purposes as may be specified in the notification.
Authored by: Nancy Garg and Dharmendar Kamti