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Incorporation of Company with a Foreign Director in India

Updated on :  

08 min read.

Every company in India is established under the Companies Act, 2013 (‘Act’). An Indian company can be incorporated with a foreign director in India under the Act. The Board of Directors (‘Board’) manages the company.

The Board of a company can comprise Indian residents and foreign nationals. However, an Indian company must have at least one director who is an Indian citizen. The Board cannot contain only foreign directors. A foreign national can be appointed as an executive or an independent director in an Indian company. 

Director Under Companies Act, 2013

The Companies Act, 2013 defines a director as a person appointed to the company’s Board. The directors manage the company affairs and are the heads of a company. The directors of a company are jointly known as the Board of Directors. 

The Board of a company is also responsible for protecting the interests of the shareholders of the company. Under the Act, a person can be appointed as one of the following types of director in a company:

  • Managing director 
  • Whole-time director 
  • Independent director 
  • Small shareholders director 
  • Additional director 
  • Alternative director 
  • Nominee director 

The Act does not forbid foreign nationals from being appointed as directors. Hence they can be appointed as any one of the directors as mentioned above in Indian companies.

Criteria to Become a Foreign Director in an Indian Company

The criteria that needs to be fulfilled by a foreign national to be a director in an Indian company is as follows:

Director Identification Number (DIN)

Every person proposed to be a director in an Indian company needs to obtain a Director Identification Number (DIN) at the time of incorporation of the company. A foreign national must obtain a DIN before the appointment as a director in an Indian company. The foreign national can get a DIN by filing form DIR-3 with the Ministry of Corporate Affairs (MCA) or must apply for a DIN in the SPICe+ form (Company incorporation form). 

The foreign national must give a declaration while applying for DIN that he/she is not disqualified from becoming a director under the Act. The foreign national cannot act as a director upon his/her appointment unless consent is given to act as a director in form DIR-2. The foreign national should file his/her written consent with the Registrar of Companies within 30 days of his/her appointment.

The documents required for obtaining DIN are 

  • Photograph
  • Address proof such as driving license, bank statement or any utility bill (not older than two months) 
  • Passport

The copies of the above documents must be notarised by a Public Notary and be apostilled by the competent authority in their country of residence.

Digital Signature Certificate (DSC)

The foreign nationals appointed as directors in an Indian company need to have a Class 3 Digital Signature Certificate (DSC). The DSC is required for filing online forms on the Ministry of Corporate Affairs (MCA) portal. The foreign nationals must affix their DSC on the DIR-3 form or SPICe+ form for obtaining the DIN.

The documents required for obtaining DSC are 

  • Photograph
  • Address proof such as driving license, bank statement or any utility bill (not older than two months) 
  • Passport

The copies of the above documents must be notarised by a Public Notary and be apostilled by the competent authority in their country of residence.

Managing Director or Whole-Time Director requirement

Foreign nationals intending to become managing directors or whole-time directors in Indian companies must fulfil the criteria of being a resident of India, i.e. who is staying in India continuously, not less than 12 months, immediately before the date of appointment as director.  

They should not be less than twenty-one years and not more than seventy years. They should not be insolvent or convicted of an offence and sentenced to imprisonment for a period of more than six months. 

Independent Director Requirement

Foreign nationals can be appointed as independent directors when they possess the skill, experience, knowledge and qualification in one or more fields of finance, law, marketing, sales, administration and research related to the company’s business. 

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 authorised dealers with an undertaking certificate and statement regarding payment of Income Tax.

Taxability of Income of a Foreign Director

The income earned by a foreign national as a director of an Indian company is taxable under the Income Tax Act, 1961. The required TDS will be deducted from their 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.

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.

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