Guide to Opening a Demat Account for Foreign Companies in India

The Ministry of Corporate Affairs (MCA) introduced regulatory change through its notification dated October 27, 2023, mandating private companies (excluding small companies) to facilitate a dematerialization facility (i.e., obtaining ISIN by company) for the shareholders to hold shares in demat form within a prescribed timeline, 18 months from the end of the financial year ending on or after March 31, 2023. Further, companies have been directed to do any transaction of securities only when the shares are held in demat form.

This development has direct implications for foreign entities operating in India, particularly wholly owned subsidiaries (WOS), which must align with the dematerialization framework within the stipulated timeframe.

Relevance for foreign companies and their India operations

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Our experts assist foreign companies with opening Demat accounts in India, ensuring full regulatory compliance securities.

Foreign companies with operations in India must take a two-step approach to demat compliance:

• Their Indian WOS must obtain an International Securities Identification Number (ISIN) for its securities.
• The foreign parent entity must open a demat account in India to hold and manage such securities in electronic form.

These requirements ensure alignment with India’s digitized securities ecosystem and enhance transparency, traceability, and regulatory oversight.

For foreign companies, opening a demat account in India is not only a viable option for their Indian subsidiary operations but can also assist them with entering into a joint venture (JV) setup.

Understanding ISIN and its importance

An ISIN is a globally recognized identifier assigned to securities. It enables seamless electronic trading, settlement, and tracking across jurisdictions.

Obtaining an ISIN is a foundational step for dematerialization, as it uniquely identifies each class of security issued by a company and facilitates its integration into the depository system.

Process for obtaining ISIN for Indian WOS

1. Appointment of Registrar and Transfer Agent (RTA)

The WOS must first appoint a Registrar and Transfer Agent (RTA), which acts as an interface between the company and the depositories, National Securities Depository Limited (NSDL) or Central Depository Services Limited (CDSL). The RTA assists in documentation, verification, and submission of the ISIN application.

2. Documentation and verification

The WOS is required to submit a comprehensive set of documents to the RTA, including:

1. Incorporation documents (certificate of incorporation, MOA, AOA)
2. GST registration certificate
3. Net worth certificates certified by a chartered accountant
4. Board resolutions and undertakings
5. Details of securities and shareholders
6. Authorized representative details
7. Declarations relating to non-resident directors and non-individual shareholders

The RTA reviews and validates these documents to ensure regulatory compliance.

3. Execution of agreements and fee payment

Upon successful verification:

1. The company pays a one-time joining fee to NSDL or CDSL
2. Executes the Master Creation Form and Tripartite Agreement
3. Submits stamped and signed documents through the RTA

Annual service charges are applicable thereafter.

4. Allotment of ISIN

Following regulatory approval, an ISIN is assigned to each category of securities issued by the WOS. This enables electronic holding and tracking of such securities within the depository system.

Opening a demat account for foreign companies

A demat account enables foreign companies to hold securities electronically, eliminating the need for physical share certificates and enabling efficient transaction processing.

1. Selection of depository participant (DP)

The foreign company must appoint a DP, which acts as an intermediary between the company and the depository (NSDL or CDSL). The DP facilitates account opening, compliance checks, and ongoing account management.

2. Pre-requisite opening of demat account

• Obtaining Permanent Account Number (PAN)
• Opening of bank account in India by foreign entity

3. Documentation and compliance requirements

1. Account opening and KYC forms
2. ISIN details of the Indian WOS
3. Corporate documents (incorporation certificate, charter documents, shareholding structure)
4. Board and shareholder resolutions
5. RBI and FEMA declarations
6. PAN and tax identification documents
7. Bank statements (recent)
8. Audited financial statements (last two years or relevant declaration)
9. Details of authorized signatories and directors
10. Identification and address proof of key officials (including passport copies and photographs)
11. Any other document as specified by the DP

Generally, all documents must be notarized and apostilled in the home jurisdiction. If documents are in a foreign language, certified English translations must also be submitted.

4. Verification and account activation

The DP conducts a detailed due diligence process to verify the authenticity and completeness of the submitted documents. Upon successful verification:

1. The foreign company pays the applicable account opening fees
2. The DP opens and activates the demat account

Annual custody and maintenance charges apply, typically linked to the scale of holdings.

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Post-account opening capabilities

Once operational, the demat account enables foreign companies to:

• Hold securities of their Indian subsidiaries/JV in electronic form
• Transfer shares seamlessly
• Participate in corporate actions such as dividends, rights issues, and bonus issues
• Ensure compliance with Indian securities and corporate laws

Key considerations for foreign entities

• Strict adherence to documentation and certification requirements is critical
• Coordination between WOS, RTA, DP, and depositories is essential for timely completion
• Regulatory compliance under corporate law, FEMA, and securities regulations must be ensured
• Ongoing costs, including annual maintenance and custody fees, should be factored in

Entities not eligible (or restricted) from opening a demat account in India

1. Unidentified or non-KYC-compliant entities

Entities that fail to meet Know Your Customer (KYC) norms cannot open a demat account.

This includes entities without valid incorporation or registration documents and firms unable to disclose ultimate beneficial ownership (UBO) or failing AML (Anti-Money Laundering) checks.

2. Entities from restricted or sanctioned jurisdictions

Entities incorporated in jurisdictions identified as high-risk by global bodies (e.g., FATF) or subject to international sanctions; such entities face restrictions or outright prohibition unless specific approvals are obtained.

3. Foreign entities Without FEMA compliance

Under the Foreign Exchange Management Act, 1999, foreign entities must comply with:

• Sectoral caps
• Entry routes (automatic vs approval)
• RBI reporting requirements

Entities that do not meet these conditions cannot lawfully hold securities and therefore cannot operate a demat account.

4. Shell companies or non-substantive entities

Entities that:

• Lack real business operations
• Exist only on paper
• Are flagged for suspicious financial activity

may be denied account opening by DPs due to regulatory risk and compliance concerns.

Conclusion

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Opening a demat account is a crucial step for foreign companies seeking to operate within India’s evolving securities framework. With the mandatory shift towards dematerialization, foreign entities must adopt a structured and compliant approach to both ISIN generation and demat account setup.

By navigating this process effectively, foreign companies can not only meet regulatory obligations but also position themselves to actively participate in India’s growing and increasingly digitized capital market ecosystem.

Looking to open a Demat account for your India operations? Book a consultation with our India advisors or email us at India@dezshira.com

Setting up a business in India requires navigating company registration, local approvals, and work permit processes. We help FDI companies by preparing and submitting documentation, coordinating with authorities, and ensuring compliance, so they can start operations smoothly and focus on growth.

Parul Sharma

Manager

Talk to an expert at India@dezshira.com

Or request a consultation at +91 0124 4001785 ext. 205

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