Compliances under Companies Act in case of Foreign Directors on Board

Compliances under Companies Act in case of Foreign Directors on Board. Overview:
According to the Companies Act, 2013, there is no restriction on having any non-resident director in an Indian company as long as one of the directors is an Indian, hence any foreign resident or NRI can be appointed to any of the positions listed below as a Director under Companies Act, 2013. The NRI director can be on both the Executive and Non-Executive Committees. 
The main purpose of having a director on board is to safeguard measures, manage resources, determine the objectives and act as the decision maker in the interest of the stakeholders and Company at large. 
The Companies Act, 2013 provides the following designations for the directors:

Managing director (MD)

Whole-time director (WTD)

Independent director (ID)

Small shareholders director

Additional director

Alternative director

Nominee director

Indian companies can appoint non-resident/foreign directors on Board pertaining to certain guidelines of the Companies Act, 2013, the Income Tax Act, 1961, and the Foreign Exchange Management Act, 1999.
Meaning of Foreign National: 
As per Section 1 of Schedule V of the Act, anybody (including an Indian resident) 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 or; A foreign national is one who has stayed outside India for more than 182 days for any employment or for carrying on a business operation or for any other purpose for a period of time. According to the statute, a foreign national is defined as under provisions of Section 2 (4) of the Companies Act, 2013, if any individual who stays in India for more than 182 days during the course of preceding financial year he/she will be treated as a person resident in India.
There are few exceptions:
(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 stay 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.
Requirement to become a Non-resident or a foreign director:

Digital Signature Certificate (DSC) - DSC is equivalent to a manual hand signature or a stamp for security and authentication purposes. DSC is to be obtained from any certifying authority in Class 3 category by providing the proof of address and copy of passport as self-identity proof. The DSC is used to affix and certify the e-forms with the Ministry of Corporate Affairs (MCA), such as DIR-3 or SPICe+ form.

The following documents are required to obtain a DSC:

Valid Passport copy

Passport size photograph (recent)

Valid address proof (bank statements/driving license/utility bills not older than two months as on the date of application)

In case the proofs are in other languages other than english, the same shall be translated in english by a professional translator and seal.

Director Identification Number (DIN) - DIN is a unique identification number which is to be obtained by the proposed foreign director in order to be appointed as a director in any Indian company.  The same can be obtained by filing form DIR-3 with the Ministry of Corporate Affairs (MCA) or foreign directors must apply for a DIN in the web form SPICe+ (Company incorporation form).

The following documents are required to make a DIN application:

Valid Passport copy

Email ID & Phone Number

Place of Birth

Occupation

Passport size photograph (recent)

Valid address proof (bank statements/driving license/utility bills not older than two months as on the date of application)

In case the proofs are in other languages other than english, the same shall be translated in english by a professional translator and seal.

The copies of the above stated documents must be duly notarized by public notary and must be apostilled by an authorised officer respectively, who belongs to the foreign national’s country of residence.
1. Declaration - A declaration is to be given by the proposed non resident / foreign director that he/she is not disqualified from becoming a Director under the Section 164 of the Companies Act, 2013, and  the disclosure of interest in the other body corporate/entities pursuant to provision of section 184 of the Act, in the first Board meeting of the Company in form MBP-1.
2. DIR-2 - Every proposed non-resident/foreign director shall make a written consent in form DIR-2 to act as a director in a company within 30 days of appointment in the Company. Section 152(5) and rule 8 of Companies (Appointment and Qualification of Directors) Rules, 2014] 
3. Eligibility criteria - Every proposed non-resident/foreign director shall be of sound mind, undischarged insolvent,  person not below age of 21 or above 70 and not convicted of any offense or sentenced to the imprisonment for not less than six (6) months and a period of five (5) years have not expired from the date of expiry of the sentence.
4. DIR-12 - Filing of e-form DIR-12 with the Ministry of Corporate Affairs (MCA) for appointment of such director within 30 days of appointment in the Indian company along with the copy of attachments as necessary.
5. Managing / WTD director - To become a managing or whole-time director, he/she must fulfill the criteria of being a resident in India for not less than 12 months and age not more than seventy years, being of sound mind and not convicted of any offense in the eyes of law.
6. Independent Director - To become an independent director, the foreign director shall have the skills, qualification, knowledge, in one or more fields such as law, finance, marketing, research, administration, sales which are related to Company’s business operation.
7. FEMA Rules - A foreign director should hold a valid employment visa and is eligible for receiving remuneration, sitting fees and commission like Indian directors of the Company. Thus, they must follow the provisions of the Foreign Exchange Management Act (‘FEMA’), 1999. The foreign directors can have a foreign currency account outside India.
8. Bank account -  Foreign directors can maintain and hold a foreign currency account with a bank located outside India. Foreign directors appointed by Indian companies, should ensure that the Indian company makes an application for remittance of their remuneration to the authorised dealers with an undertaking certificate and statement regarding payment of Income Tax.
9. Tax implication - The foreign directors are liable to pay tax for income earned under the Income Tax Act, 1961. The required TDS is deducted from their commission or remuneration per the provisions of the Income Tax Act. The foreign director should obtain a PAN if the financial transaction exceeds INR 2,50,000 in a financial year per the provisions of the Income Tax Act. 
Key points for foreign company in India:

The NRI Director is required to attend at least one Board meeting, either in person or via video conference.

A NRI Director of an Indian Company can open a Foreign Currency Account with any bank based outside of India.

The Income-tax Act allows a Non-Resident to claim a tax deduction.

A Non-Resident is entitled to the company’s compensation, sitting fees, and travel expenses.

Overview:

According to the Companies Act, 2013, there is no restriction on having any non-resident director in an Indian company as long as one of the directors is an Indian, hence any foreign resident or NRI can be appointed to any of the positions listed below as a Director under Companies Act, 2013. The NRI director can be on both the Executive and Non-Executive Committees.

The main purpose of having a director on board is to safeguard measures, manage resources, determine the objectives and act as the decision maker in the interest of the stakeholders and Company at large.

The Companies Act, 2013 provides the following designations for the directors:

Managing director (MD)
Whole-time director (WTD)
Independent director (ID)
Small shareholders director
Additional director
Alternative director
Nominee director

Meaning of Foreign National:

As per Section 1 of Schedule V of the Act, anybody (including an Indian resident) 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 or; A foreign national is one who has stayed outside India for more than 182 days for any employment or for carrying on a business operation or for any other purpose for a period of time. According to the statute, a foreign national is defined as under provisions of Section 2 (4) of the Companies Act, 2013, if any individual who stays in India for more than 182 days during the course of preceding financial year he/she will be treated as a person resident in India.

There are few exceptions:

(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 stay 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.

Requirement to become a Non-resident or a foreign director:

Digital Signature Certificate (DSC) - DSC is equivalent to a manual hand signature or a stamp for security and authentication purposes. DSC is to be obtained from any certifying authority in Class 3 category by providing the proof of address and copy of passport as self-identity proof. The DSC is used to affix and certify the e-forms with the Ministry of Corporate Affairs (MCA), such as DIR-3 or SPICe+ form.

The following documents are required to obtain a DSC:

Valid Passport copy
Passport size photograph (recent)
Valid address proof (bank statements/driving license/utility bills not older than two months as on the date of application)
In case the proofs are in other languages other than english, the same shall be translated in english by a professional translator and seal.

Director Identification Number (DIN) - DIN is a unique identification number which is to be obtained by the proposed foreign director in order to be appointed as a director in any Indian company. The same can be obtained by filing form DIR-3 with the Ministry of Corporate Affairs (MCA) or foreign directors must apply for a DIN in the web form SPICe+ (Company incorporation form).

The following documents are required to make a DIN application:

Valid Passport copy
Email ID & Phone Number
Place of Birth
Occupation
Passport size photograph (recent)
Valid address proof (bank statements/driving license/utility bills not older than two months as on the date of application)
In case the proofs are in other languages other than english, the same shall be translated in english by a professional translator and seal.

1. Declaration - A declaration is to be given by the proposed non resident / foreign director that he/she is not disqualified from becoming a Director under the Section 164 of the Companies Act, 2013, and the disclosure of interest in the other body corporate/entities pursuant to provision of section 184 of the Act, in the first Board meeting of the Company in form MBP-1.

2. DIR-2 - Every proposed non-resident/foreign director shall make a written consent in form DIR-2 to act as a director in a company within 30 days of appointment in the Company. Section 152(5) and rule 8 of Companies (Appointment and Qualification of Directors) Rules, 2014]

3. Eligibility criteria - Every proposed non-resident/foreign director shall be of sound mind, undischarged insolvent, person not below age of 21 or above 70 and not convicted of any offense or sentenced to the imprisonment for not less than six (6) months and a period of five (5) years have not expired from the date of expiry of the sentence.

4. DIR-12 - Filing of e-form DIR-12 with the Ministry of Corporate Affairs (MCA) for appointment of such director within 30 days of appointment in the Indian company along with the copy of attachments as necessary.

5. Managing / WTD director - To become a managing or whole-time director, he/she must fulfill the criteria of being a resident in India for not less than 12 months and age not more than seventy years, being of sound mind and not convicted of any offense in the eyes of law.

6. Independent Director - To become an independent director, the foreign director shall have the skills, qualification, knowledge, in one or more fields such as law, finance, marketing, research, administration, sales which are related to Company’s business operation.

7. FEMA Rules - A foreign director should hold a valid employment visa and is eligible for receiving remuneration, sitting fees and commission like Indian directors of the Company. Thus, they must follow the provisions of the Foreign Exchange Management Act (‘FEMA’), 1999. The foreign directors can have a foreign currency account outside India.

8. Bank account - Foreign directors can maintain and hold a foreign currency account with a bank located outside India. Foreign directors appointed by Indian companies, should ensure that the Indian company makes an application for remittance of their remuneration to the authorised dealers with an undertaking certificate and statement regarding payment of Income Tax.

9. Tax implication - The foreign directors are liable to pay tax for income earned under the Income Tax Act, 1961. The required TDS is deducted from their commission or remuneration per the provisions of the Income Tax Act. The foreign director should obtain a PAN if the financial transaction exceeds INR 2,50,000 in a financial year per the provisions of the Income Tax Act.

Key points for foreign company in India:

The NRI Director is required to attend at least one Board meeting, either in person or via video conference.
A NRI Director of an Indian Company can open a Foreign Currency Account with any bank based outside of India.
The Income-tax Act allows a Non-Resident to claim a tax deduction.
A Non-Resident is entitled to the company’s compensation, sitting fees, and travel expenses.