Appointment of Foreign Director in existing Indian Private Limited Company – Documents, Compliances under FEMA, and Tax Compliances

Introduction

India continues to be a desirable location for investment among foreign companies and foreign nationals due to its second-largest population in the world and its abundant talent pool of talented IT workers. The Companies Act of 2013 (the “Act”) governs the formation of every business in India. The Act permits the incorporation of an Indian company in India with a foreign director. The corporation is managed by the Board of Directors. The prime focus of this article is on Appointment of Foreign Director in existing Indian Private Limited Company. Other Information such as Documents required to become a foreign director in an Indian Company, Compliances under FEMA, Tax Compliances of a Private Limited Company in India with foreign director.

Meaning of a Director in a Company 

Companies are invisible, intangible entities whose directors are charged with carrying out their objectives. The Board of a company is also in charge of defending the interests of the corporation’s stockholders. A person maybe appointed as one of the following sorts of directors in a company in accordance with the Act:

• Independent Director
• Managing Director
• Additional Director
• Whole-time Director
• Nominee Director
• Small Shareholders Director
• Alternative Director

Foreigners are eligible to serve as directors of Indian Private Limited Company under the Companies Act, 2013. 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.

What advantages do foreign nationals receive when they join an Indian company as directors?

• One can expand their network and develop a presence in India.
• A person can increase their understanding of the many business models and strategies utilized to boost efficiency and effectiveness in the market.
• A director has full authority to make decisions regarding any current company activity.
• Directors have the opportunity to create company policy and manage the company’s resources.

FEMA rules and regulation for a Foreign Director in existing Indian Private Limited Company

Foreigners appointed as directors in Indian corporations are entitled to the same compensation, commissions, and sitting fees as Indian directors. They must therefore adhere to the rules set forth in the Foreign Exchange Management Act (or “FEMA”) of 1999.

Foreign nationals who wish to serve as directors for an Indian corporation must be in possession of a current employment visa. They are allowed to have and keep a foreign currency account with a bank outside of India. The entire remuneration provided to them for their work as directors in an Indian firm maybe remitted or received by the individual.

When Indian corporations appoint foreign directors, they must submit a request for remittance of their compensation to the authorized dealers together with an undertaking certificate and declaration confirming the payment of income tax.

Documents required for a Foreign Director in existing Indian Private Limited Company

• A foreign national lives in their country of origin

  • If the native country is a signatory to the Hague Convention, address proof, and evidence of identification shall be notarized by the public notary of that foreign nation and apostilled by that nation’s responsible authority.
  • If the native nation is not a signatory to the Hague Convention, address evidence, and proof of identification must be notarized by the foreign country’s public notary and consular by its competent authority. Documents necessary: Passport and a photo application form (all attested).

• A Foreign resident of India

  • The following papers need to be attested to by an Embassy
    • Resident Permit certificate signed by an Assistant Foreigner Regional, Registration Officer from the Bureau of Immigration India.
    • Passport
    • visa and application form with a photo (attested)

• Neither in India nor their country of origin

  • The local embassy of the nation the person is from should certify the following papers:
    • Passport
    • Application form with a photo (attested)
    • visa

Process for appointing a Foreign Director in a Private Limited Company in India

Step 1: Application for DSC (Digital Signature Certificate)

Applying for a digital signature of the director is the first step in becoming a director of a private limited company. It is necessary to file paperwork at the MCA DSC (Digital Signature Certificate).

Step 2: Director Identification Number for Foreign Director

Obtaining a Director Identification Number is required to become a Company Director. NRI Directors must file a DIR 3 form in order to request a DIN. The government charges INR 500 for DIN registration. The form must be signed by the existing director of the Indian company wherein he/she will be appointed as a Director.

Step 3: Board Meeting

The board of directors makes decisions on behalf of the firm as a whole. The board will convene a meeting after receiving a letter from the NRI Director requesting to serve as director. To add an NRI as a director, the board must approve a board resolution at its meeting. This paperwork needs to be stamped by the business and signed by the board.

Step 4: DIR 12 Filing

For the appointment of a foreign director of a private limited company, a DIR 12 form must be filed. Company information, the date of appointment, designation, the first director’s declaration, and the declaration of the newly appointed director in Form No. DIR-2 are included in the DIR-12 form.

Tax Compliances of a Private Limited Company in India with foreign director

The Income Tax Act of 1961 makes the income a foreign national makes while serving as a director of an Indian corporation taxable. According to the terms of the Income Tax Act, the necessary TDS will be subtracted from their commission or compensation.

According to the Income Tax Act, if a foreign national who is a director in an Indian firm engages in financial transactions of INR 2,50,000 or more in a fiscal year, they are required to obtain a PAN Card.

Foreign directors may be appointed to positions in Indian corporations without restriction, however they must adhere to the rules outlined in the Companies Act of 2013, Income Tax Act of 1961, and FEMA of 1999.

Eligibility Criteria for a Foreign Director in an Indian Private Limited Company  

• 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 should not 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 maybe appointed as independent directors.
• The potential director needs to have a current work visa.

Documents required for grant of business/work visa  

• A valid travel document and a re-entry permit, if required under the law of the country concerned.
• Proof of financial standing and expertise in the field of intended business.
• Documents/ papers pertaining to proposed business activity such as registration of the company under the Companies Act, proof of registration of the firm with the State Industries Department or the Export Promotion Council concerned or any recognized promotional body in the relevant field of industry or trade etc.

The conditions to be fulfilled for the grant of a Business visa  

• The foreign national should be a person of assured financial standing (sufficient proof of his/ her financial standing and expertise in intended business will be checked thoroughly while granting the visa).
• The foreign national should not be visiting India for the business of money lending or for running a petty business or petty trade or for full time employment in India, etc.
• The foreign national shall comply with all other requirements like payment of tax liabilities etc.

Conclusion

The registration of a corporation with foreign directors is not prohibited, but there are requirements that must be met. Both executive directors and non-executive directors maybe foreign nationals. The process for appointing a foreign director is the same as for an Indian director, but there are some additional requirements that must be met, such as having the paperwork notarized and signed by an apostle for the embassy to accept them.

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