Appointment of Foreign Directors in Indian Companies 

As we know India has become the 5^th largest economy in the world and by 2050 it will come in the list of the top 3 world largest economies in the world. Because of this huge achievement, India has become one of the most desirable countries in the globe for Foreign Investors, due to which Foreign Nationals want to enter the Indian Markets in any way possible. India also offers Foreign Investors various business opportunities & a huge consumer market for their services, which helps develop good exposure in the huge Asian Market. A Foreign National can be appointed as an Independent Director or an Executive Director in an Indian Company. So, the Appointment of Foreign Directors in Indian Companies not only provides big exposure to Foreign Individuals in the Indian Market but also provides business opportunities to expand their business worldwide. In this article, we will discuss the appointment of Foreign Directors in Indian Companies.

In India, every company is established under the Companies Act, of 2013. An Indian Company can be registered with a Foreign Director in India under the Companies Act. The Board of Directors manages the Company and can comprise Foreign Nationals & Indian Residents. However, an Indian Company must have at least 1 Director who is an Indian Citizen.

Definition of a Director under the Companies Act, 2013

As per Companies Act, 2013, a Director is an individual appointed to the Company’s Board. The Directors of a Company manage all the Company’s Affairs & are the Company’s head. The Company’s Directors are jointly known as the BoDs (Board of Directors). The Company’s Board is also responsible for safeguarding the Shareholders’ interests. Under the Companies Act, an individual can be appointed as one of the following types of Director:

1. Independent Director;
2. Whole-time Director;
3. Alternative Director;
4. Managing Director;
5. Small Shareholder Director;
6. Nominee Director;
7. Additional Director.

Note: The Companies Act, 2013 doesn’t forbid Foreign Nationals from being appointed as Directors of a Company. Hence, Foreign Nationals can be appointed as any one of the Directors as we mentioned above in Indian Companies.

What are the Advantages of the Appointment of Foreign Directors in Indian Companies?

The following are the advantages of the appointment of Foreign Directors in Indian Companies:

1. The internal policies of the Company are polished as the Foreign National brings about the required changes in the current procedure of the organization;
2. Help in developing operations & expanding the business to various foreign jurisdictions;
3. The clientele of the business increases many folds because of the expansion of operations & change in culture;
4. The experience of a Foreign National helps the business in developing & strengthening its core operations.

Eligibility Criteria for the Appointment of Foreign Directors in Indian Companies

The following are the eligibility criteria for the appointment of Foreign Directors in Indian Companies:

1. The individual must have a valid passport;
2. The person should be at least 21 years on the day of an appointment;
3. He or She shouldn’t be bankrupt or convicted of any crime;
4. The Board of the Company should have an Indian Resident;
5. The Director must have a current work Visa;
6. In case the Foreign National has experience in any skill that is the Company’s core operation, then he or she can be appointed as an Independent Director;
7. He or She shouldn’t have received a jail term of more than 6 months in their home country or any other country.

Documentation Required for the Appointment of Foreign Directors in Indian Companies

Following is the documentation required for the appointment of Foreign Directors in Indian Companies:

• If the Foreign National or Foreigner is a Resident of India:

1. Resident Permit should be signed by the Assistance Foreigner Regional Registration Officer;
2. Visa and application form with a recent photo attested by the concerned Embassy;
3. Passport of the person which is duly attested by the concerned Embassy;

• If the Foreign National or applicant is living in their home country:

1. Suppose the native nation of the Foreigner is a Signatory to the Hague Convention. In that instance, the address proof & id of the person shall be notarized & apostilled by the country’s responsible authority;
2. If the nation is not a signatory of the Hague Convention, then the documents shall be notarized by the nation along with the consular by its competent authority.

• If the Foreign National does not reside in the home country or India then the individual needs to certify the following papers from the local Embassy of the country in which he or she is living:

1. Passport;
2. Visa;
3. Application form along with a photo.

• The following are the documents required for the Grant of a Work Visa or Business Visa:

1. Any proof regarding the financial standing of the business along with an Experience Certificate in the business field;
2. A valid travel document & a re-entry permit;
3. All the documents regarding the business activity of the Foreign National, including all the Business Registration Certificates.

• The following are some conditions that need to be fulfilled for the grant of a Business Visa:

1. The Foreign National or Individual shouldn’t be visiting India for the business of money lending or for running a small business or trade or full-time employment in India;
2. The Foreign National or individual  should be a person of assured financial standing (adequate proof of their financial standing & expertise in intended business will be checked carefully while granting the Business Visa);
3. The Foreign National or Individual shall comply with all the requirements such as payment of tax liabilities, etc.

Step-by-Step Procedure for the Appointment of Foreign Directors in Indian Companies

Following is the step-by-step procedure for the appointment of Foreign Directors in Indian Companies:

Step 1: First, you need to obtain DSC (Digital Signature Certificate) and DIN (Director Identification Number) for the proposed Director of the Company.

Step 2: After obtaining DSC and DIN for all the proposed Directors, you need to prepare & file all the necessary for the appointment of Foreign Director in Indian Companies including DIN application, and submit them to the ROC.

Step 3: Then, the Registrar of Companies will approve the application & issue the DIN.

Step 4: Once all the above steps are completed, the Company can appoint the foreign national as a Director.

Step 5: The appointment of the Foreign Director is completed after filing the DIR-12 Form for the Company. The DIR-12 Form contains details like Appointment Date, 1^st Director’s Declaration & Declaration of the new Director along with the basic information of the Foreigner or Foreign National.

Compliance for the Appointment of Foreign Directors in India Companies

• Taxability of a Foreign Director’s Income

The income of a Foreign National or Individual as a Director of an Indian Company is taxable under the Income Tax Act, of 1961. The required TDS will be deducted from their remuneration/commission according to the provisions of the Act. Under the Income Tax Act, of 1961, a Foreign Individual who is a Company’s Director in India must get a PAN Card mandatorily if he or she is having a financial transaction of Rs. 2.5 lakhs or more in F.Y (Financial Year).

• FEMA Compliance for a Foreign Director

A Foreign Individual appointed as a Director is eligible to receive a commission, remuneration & sitting fees like Indian Directors. Hence, they must follow the provisions of the FEMA Act, of 1999. Foreign Individuals wanting to be a Director in an Indian Company should hold a valid Employment Visa. They can hold & maintain a Foreign Currency account with a bank located outside India. They can receive or remit the complete salary paid to them as Directors of an Indian Company.

When Indian Companies appoint Foreign Nationals as Directors, the companies should make a remittance application for their remuneration to the authorized dealers with an undertaking Certificate & Statement concerning payment of Income Tax.

Conclusion

For the growth of the Indian Economy & globalization, the appointment of Foreign Directors in Indian Companies is one of the most important steps. The incorporation of a Company with Foreign Directors is not prohibited, but some requirements should be met. The process for the appointment of Foreign Directors in Indian Companies is the same as for an Indian Director, but some extra requirements should be met.