For Indian entrepreneurs and corporations, the UAE presents exceptional opportunities through its robust DTAA framework, zero withholding tax environment, and substance-based tax residency structures that enable legitimate tax optimization while maintaining full compliance with international standards.Key Strategic Advantages:

• Federal corporate tax of only 9% above AED 375,000 (approx. USD 102,000)
• 0% tax regime for qualifying Free Zone entities with economic substance
• Zero personal income tax, capital gains tax, and dividend tax
• 100% profit repatriation with no exchange controls
• India-UAE DTAA enabling reduced withholding tax rates
• 2-7 day incorporation with digital government processes
• 90+ DTAAs providing global tax treaty network

UAE Legal Framework & Jurisdictional Architecture

1.1 Multi-Layered Regulatory System

The UAE operates a sophisticated multi-jurisdictional legal framework comprising:

Federal Level:

• Ministry of Economy (MOE) – Federal commercial regulation and policy
• Federal Tax Authority (FTA) – Tax administration and compliance
• Central Bank of UAE (CBUAE) – Banking regulation and AML oversight
• Securities and Commodities Authority (SCA) – Capital markets regulation

Emirate Level:

• Department of Economic Development (DED) – Mainland company licensing (Dubai, Abu Dhabi, Sharjah, etc.)
• Each emirate maintains independent licensing and regulatory frameworks

Free Zone Level:

• 40+ specialized Free Zones with independent regulatory authorities
• Each offers sector-specific advantages and compliance requirements

International Financial Centers:

• DIFC (Dubai International Financial Centre) – Common law jurisdiction
• ADGM (Abu Dhabi Global Market) – Common law jurisdiction
• Both operate independent court systems based on English common law

1.2 Legal System Foundation

Civil Law Base: Influenced by Egyptian and French civil codes Sharia Law Application: Personal status matters and specific commercial disputes Common Law Enclaves: DIFC and ADGM operate entirely under common law principles

This hybrid legal architecture allows businesses to choose the most appropriate jurisdiction based on their operational model, target markets, and compliance requirements.

Business Entity Structures – Comprehensive Analysis

2.1 Mainland Limited Liability Company (LLC)

Legal Framework: UAE Commercial Companies Law (Federal Law No. 32 of 2021)

Structural Characteristics:

• Ownership: 100% foreign ownership permitted (since 2021 reform)
• Minimum/Maximum Shareholders: 1-50 shareholders
• Share Capital: Typically AED 300,000 minimum (USD 81,700) for trading licenses; AED 50,000 for service activities
• Trade Name: Must include “LLC” or Arabic equivalent
• Scope of Operations: Can operate anywhere in UAE and bid for government contracts

Taxation Profile:

• Subject to 9% federal corporate tax on taxable profits exceeding AED 375,000
• 5% VAT registration mandatory for turnover exceeding AED 375,000
• Full access to India-UAE DTAA benefits with proper substance

Compliance Requirements:

• Annual financial audit by UAE-licensed auditor
• Annual license renewal with DED
• Economic Substance Regulations (ESR) filing if applicable
• Ultimate Beneficial Ownership (UBO) disclosure
• Corporate Tax registration and annual returns

Strategic Use Cases:

• Companies requiring physical operations throughout UAE
• Businesses seeking government contracts or public sector engagement
• Retail operations, real estate activities, or local trading
• Service providers needing mobility across all emirates

Cross-Border Structuring Consideration: Mainland companies provide strongest commercial presence for Indian businesses seeking to establish regional operations, particularly for trading activities with GCC countries under the GCC Customs Union.

2.2 Free Zone Company (FZE / FZ-LLC)

Legal Framework: Individual Free Zone regulations and UAE Commercial Companies Law

Two Primary Structures:

FZE (Free Zone Establishment):

• Single shareholder entity
• Flexible ownership (individual or corporate)
• Faster incorporation process

FZ-LLC (Free Zone Limited Liability Company):

• 2-50 shareholders permitted
• Suitable for partnership structures
• Similar benefits to FZE

Structural Characteristics:

• Ownership: 100% foreign ownership guaranteed
• Share Capital: Varies by zone (typically AED 50,000-150,000)
• Operational Scope: Within Free Zone + international markets
• Mainland Trading: Requires local distributor or service agent

Taxation Profile:

• 0% corporate tax on qualifying income (most significant advantage)
• 5% VAT applies to domestic UAE transactions
• No withholding tax on dividends, interest, or royalties
• Must meet Economic Substance Requirements to maintain 0% status

Economic Substance Requirements (Critical for 0% Tax): To qualify for 0% corporate tax, Free Zone companies must demonstrate:

1. Core Income-Generating Activities (CIGA) conducted in UAE
2. Adequate qualified employees in the UAE
3. Adequate operating expenditure incurred in UAE
4. Physical office space commensurate with activity level
5. Strategic decision-making occurs in UAE

Popular Free Zones for Indian Investors:

DMCC (Dubai Multi Commodities Centre)

• Specialization: Commodities trading, precious metals, diamonds
• Benefits: Strong regulatory framework, Grade A offices
• Ideal for: Trading companies, commodities businesses

JAFZA (Jebel Ali Free Zone)

• Specialization: Manufacturing, logistics, warehousing
• Benefits: Proximity to Jebel Ali Port (world’s 9th busiest)
• Ideal for: Import/export, distribution, logistics

Dubai Silicon Oasis (DSO)

• Specialization: Technology, IT services, innovation
• Benefits: Integrated tech ecosystem
• Ideal for: Software development, IT consulting, startups

IFZA (International Free Zone Authority)

• Specialization: General trading, consulting, services
• Benefits: Cost-effective, flexible packages
• Ideal for: SMEs, consultants, service providers

RAK ICC (Ras Al Khaimah International Corporate Centre)

• Specialization: Holding companies, offshore structures
• Benefits: Enhanced privacy, competitive pricing
• Ideal for: Investment holding, IP holding structures

Sharjah Media City (SHAMS)

• Specialization: Media, marketing, creative industries
• Benefits: Lower cost than Dubai free zones
• Ideal for: Marketing agencies, content creators

Strategic Use Cases:

• International trading companies with global client base
• Technology and software service providers serving international markets
• Holding companies for investment portfolios
• E-commerce and online service businesses
• Consultancy and professional services for overseas clients
• IP holding structures with licensing arrangements

Cross-Border Structuring for Indian Investors:

Two-Tier Structure Example:

India Operating Company (Indian tax resident)

           ↓ (Service fees/Royalties @ 10% WHT under DTAA)

UAE Free Zone Company (0% tax, substance compliant)

           ↓ (Dividends – 0% WHT)

Indian Promoter/Holding Structure

This structure enables:

• Profit pooling in 0% tax jurisdiction
• Working capital optimization outside India’s regulatory environment
• FEMA compliance through legitimate business operations
• Reinvestment flexibility without distribution tax

2.3 Offshore Company (RAK ICC / Jebel Ali)

Legal Framework: Specialized offshore company regulations

Structural Characteristics:

• Ownership: 100% foreign ownership, maximum privacy
• Physical Presence: No office or staff required in UAE
• Share Capital: Typically AED 1,000 minimum (nominal)
• Operational Scope: International business only (no UAE mainland operations)
• Registered Agent: Mandatory requirement

Taxation Profile:

• 0% corporate tax (not engaged in UAE business)
• No VAT registration required
• No withholding tax on cross-border payments
• No audit requirements in most jurisdictions

Structural Features:

• Bearer shares not permitted (abolished for transparency)
• Nominee shareholders and directors permitted
• Enhanced privacy with limited public disclosure
• Bank account opening possible but requires strong substance documentation

Strategic Use Cases:

• International trading where goods never enter UAE
• Intellectual property holding and licensing
• Investment holding for international portfolio
• International consultancy and service agreements
• Asset protection and estate planning structures

Compliance Considerations:

• Must demonstrate genuine commercial rationale beyond tax savings
• Bank account opening increasingly requires economic substance evidence
• OECD Substance-over-Form principles apply
• CFC (Controlled Foreign Company) rules in investor’s home country must be analyzed

Critical Warning for Indian Residents:

Indian tax residents must carefully evaluate:

• Section 6 of Income Tax Act – Tax residency determination
• Section 9 of Income Tax Act – Income deemed to accrue in India
• GAAR (General Anti-Avoidance Rules) – Impermissible avoidance arrangements
• CFC provisions (Section 285A) – Undistributed passive income attribution

An offshore company without adequate substance may be disregarded for tax purposes or treated as a sham structure by Indian tax authorities.

Recommended Substance Enhancements: Even for offshore structures, consider:

• Physical office facility (virtual office insufficient)
• UAE-based director alongside foreign directors
• Local bank account with transaction activity
• Professional service providers (accounting, audit if voluntary)
• Documentation of strategic decisions in UAE

2.4 DIFC/ADGM Companies (Common Law Jurisdictions)

Legal Framework: Independent common law systems

Dubai International Financial Centre (DIFC):

• Established 2004, operates under independent legal framework
• DIFC Courts with English law jurisdiction
• Over 4,500+ registered entities
• Focused on financial services, fintech, professional services

Abu Dhabi Global Market (ADGM):

• Established 2013, modeled on English law principles
• ADGM Courts with independent judiciary
• Competitor to DIFC with similar regulatory approach
• Strong focus on financial services, asset management

Structural Characteristics:

• Company Types: Private/Public limited companies, partnerships, foundations
• Minimum Directors: 1 (must be natural person)
• Company Secretary: Mandatory requirement
• Share Capital: No minimum, flexible structure
• Audited Financials: Mandatory annual requirement

Taxation Profile:

• 0% corporate tax for qualifying activities (50-year guarantee)
• No withholding tax on cross-border payments
• 5% VAT on taxable supplies
• Must comply with Economic Substance Regulations

Regulatory Advantages:

• DFSA (Dubai Financial Services Authority) and FSRA (Financial Services Regulatory Authority) provide robust oversight
• Passporting rights into UAE mainland
• Regulatory equivalence recognized by major financial centers
• English language contracts and legal proceedings

Strategic Use Cases:

• Fund management and asset management companies
• Family office structures with sophisticated governance
• Fintech and financial technology ventures
• Insurance and reinsurance operations
• Professional services (legal, accounting) for international clients
• Wealth management and private banking

Cost Considerations: DIFC/ADGM entities typically have higher setup and maintenance costs compared to other free zones:

• Annual registration fees: USD 10,000-15,000+
• Regulatory fees for licensed activities
• Mandatory company secretary and auditor costs
• Office space requirements (typically premium locations)

Cross-Border Structuring Advantage: The common law framework and reputable regulatory environment make DIFC/ADGM entities particularly attractive for:

• Institutional investors requiring recognized jurisdiction
• Private equity and venture capital structures
• International joint ventures with governance protections
• IP licensing arrangements requiring strong legal enforceability

2.5 Branch Office / Representative Office

Branch Office:

• Legal Status: Extension of parent company (not separate legal entity)
• Liability: Parent company fully liable
• Activities: Can engage in commercial operations
• Taxation: Subject to 9% corporate tax on UAE-sourced profits
• Profit Repatriation: No restrictions

Representative Office:

• Legal Status: Non-trading entity
• Activities: Marketing, liaison, market research only (no revenue generation)
• Taxation: Minimal tax impact (no trading profits)
• Duration: Typically renewable annually

Strategic Use Cases:

• Multinational corporations testing UAE market
• Regional liaison offices for business development
• Project-specific operations with limited duration
• Service centers for parent company clients

Currency, Capital Controls & Banking Environment

3.1 Currency Framework

UAE Dirham (AED):

• Peg: Fixed to USD at 1 USD = 3.6725 AED (since 1997)
• Stability: Highly stable currency backed by substantial foreign reserves
• Convertibility: Fully convertible, no restrictions
• Regional Use: Widely accepted across GCC region

Strategic Advantage: The USD peg eliminates foreign exchange risk for USD-denominated transactions, making UAE ideal for international trading and investment structures.

3.2 Capital Controls & Repatriation

Comprehensive Freedom:

• Zero capital controls on foreign investment
• 100% profit repatriation permitted
• No withholding tax on dividends to foreign shareholders
• No restrictions on capital repatriation
• No approval required from Central Bank for remittances

Practical Implications: Indian investors can freely repatriate:

• Dividends from UAE companies
• Sale proceeds from equity transfers
• Loan repayments and interest
• Royalties and technical fees
• Capital from liquidation

This unrestricted capital mobility is particularly valuable for Indian entrepreneurs compared to India’s FEMA regulations and liberalized remittance scheme (LRS) limits.

3.3 Banking System & Account Opening

Banking Landscape:

• 48+ banks operating in UAE (local and international)
• Major UAE banks: Emirates NBD, Abu Dhabi Commercial Bank (ADCB), First Abu Dhabi Bank (FAB)
• International banks: HSBC, Citibank, Standard Chartered, Barclays
• Sophisticated infrastructure with digital banking capabilities

Account Opening Requirements (2025):

For Company Accounts:

1. Trade license and corporate documents
2. Economic substance evidence (office lease, utility bills)
3. Business plan and projected financials
4. Shareholders and directors’ documentation (passport, residence visa, address proof)
5. Source of funds declaration and expected transaction volumes
6. Introduction from professional service provider or existing client

Enhanced Due Diligence Considerations:

• Banks increasingly scrutinize business substance and genuine commercial activity
• Offshore companies face higher scrutiny and documentation requirements
• Transaction monitoring for anti-money laundering compliance
• Ultimate Beneficial Ownership (UBO) verification mandatory

Banking Challenges for Indian Promoters:

• Some banks apply enhanced scrutiny to India-linked structures due to AML concerns
• Requiring minimum deposits (USD 5,000-25,000 depending on bank)
• Processing time: 2-8 weeks depending on bank and entity type
• Personal visit to UAE often required for account opening

Strategic Banking Recommendations:

• Establish genuine business operations before banking application
• Prepare comprehensive business documentation demonstrating substance
• Consider local UAE banks which may be more flexible than international banks
• Engage corporate banking relationship managers for complex structures
• Maintain clean transaction history and transparent fund flows

UAE Taxation Framework – Deep Dive

4.1 Federal Corporate Tax (Effective June 1, 2023)

Tax Rate Structure:

Taxable Income (AED)	Tax Rate	Effective Rate on Total Income
0 – 375,000	0%	0%
Above 375,000	9%	Marginal 9% on excess

Example Calculation:

• Taxable Profit: AED 1,000,000
• Tax-Free Amount: AED 375,000
• Taxable Amount: AED 625,000
• Tax Payable: AED 625,000 × 9% = AED 56,250
• Effective Tax Rate: 5.625%

Critical Exemptions:

Qualifying Free Zone Persons (QFZP):

• Entities meeting Economic Substance Requirements
• Deriving qualifying income only
• 0% tax rate on qualifying income
• 9% tax on non-qualifying income

Qualifying Income Includes:

• Transactions with other Free Zone entities
• Transactions with foreign entities (outside UAE mainland)
• Income from qualifying activities in the Free Zone

Non-Qualifying Income:

• UAE mainland domestic transactions
• Income from excluded activities
• Income from disqualified sources

Small Business Relief:

• Businesses with revenue below AED 3 million may elect simplified compliance
• Reduced administrative burden
• Aligned with international small business practices

4.2 Economic Substance Requirements (ESR) – Compliance Essentials

Introduced to combat BEPS (Base Erosion and Profit Shifting), ESR applies to entities conducting “relevant activities”:

Relevant Activities:

1. Banking business
2. Insurance business
3. Investment fund management
4. Lease-finance business
5. Headquarters business
6. Shipping business
7. Holding company business
8. Intellectual property business
9. Distribution and service center business

Substance Requirements (Three-Tier Test):

Tier 1: Core Income-Generating Activities (CIGA)

• Must be conducted in the UAE
• Activities that generate income must have genuine UAE nexus

Tier 2: Adequate Resources

• Qualified employees: Sufficient number and expertise in UAE
• Physical premises: Adequate office space (not just virtual office)
• Operating expenditure: Proportionate to activity level

Tier 3: Adequate Direction & Management

• Strategic decisions made in UAE
• Board meetings held in UAE with adequate frequency
• Senior management actively involved in UAE operations

ESR Compliance Process:

• Annual notification filing required
• Deadline: 6 months from financial year-end
• Non-compliance penalties: AED 10,000-300,000
• Repeated non-compliance: License suspension risk

Substance Levels by Activity:

High Substance (IP, Holding, HQ):

• Minimum 2-3 qualified employees
• Regular board meetings (quarterly minimum)
• Substantial operating expenditure
• Detailed documentation of decision-making

Medium Substance (Trading, Services):

• Adequate staff for transaction volumes
• Functional office space
• Demonstrable business activity

Strategic Substance Planning:

For Indian investors seeking 0% tax benefits:

1. Hire UAE residents (can be Indian expatriates with UAE residence visa)
2. Lease physical office with proper fitout
3. Hold regular board meetings in UAE with documented minutes
4. Maintain UAE bank account with active transaction flow
5. Use UAE-based service providers (accounting, legal, admin)
6. Document all key decisions with UAE nexus

Cost Implications:

• Office space: AED 15,000-50,000/year (depending on free zone)
• Employee costs: AED 60,000-120,000/year per employee
• Professional services: AED 10,000-30,000/year
• Total minimum substance cost: AED 100,000-200,000/year

This investment is justified when tax savings and commercial benefits exceed substance costs.

4.3 Value Added Tax (VAT)

Standard Rate: 5% (among world’s lowest)

Registration Thresholds:

• Mandatory: Taxable supplies exceeding AED 375,000/year
• Voluntary: Taxable supplies below AED 375,000/year

Zero-Rated Supplies (0% VAT with input credit):

• International transportation
• Healthcare and education (specific conditions)
• Precious metals investment
• Exports of goods outside GCC
• Newly constructed residential properties (first supply)

Exempt Supplies (no VAT charged, no input credit):

• Financial services (most)
• Residential property rentals
• Bare land

VAT on Cross-Border Services:

For Indian Companies Receiving Services from UAE:

• Reverse charge mechanism applies in India
• UAE supplier charges 0% VAT (export of service)
• Indian recipient pays GST via reverse charge

For UAE Companies Providing Services to Indian Clients:

• UAE company charges 0% VAT (export of service)
• Maintains UAE VAT registration for compliance
• Input VAT on UAE costs can be recovered

Compliance Requirements:

• Quarterly VAT returns (small businesses)
• Monthly VAT returns (large businesses)
• Digital filing mandatory
• Penalties for late filing: AED 1,000-2,500 per return

4.4 No Personal Income Tax

Comprehensive Exemption:

• Zero personal income tax for residents and non-residents
• No tax on employment income, regardless of amount
• No tax on investment income (dividends, interest, capital gains)
• No inheritance or estate tax

Strategic Advantage: Indian entrepreneurs relocating to UAE can receive:

• Salary/director fees tax-free from UAE company
• Dividends from UAE and foreign sources tax-free
• Capital gains from investments tax-free

India Tax Residency Consideration:

Indian individuals must carefully plan to avoid dual tax residency:

UAE Tax Residency (for Tax Certificate):

• Physical presence of 183+ days in calendar year, OR
• UAE residence visa + business/employment + UAE home + center of vital interests

India Tax Residency (to avoid):

• Physical presence 182+ days in financial year, OR
• 60+ days in FY + 365+ days in preceding 4 years (for Indian citizens)

Recommended Strategy:

• Spend 183+ days in UAE (firmly establish UAE residency)
• Spend less than 182 days in India (avoid India residency)
• Obtain UAE Tax Residency Certificate annually
• Maintain residential accommodation and utility connections in UAE
• Centralize family and economic interests in UAE

This enables complete exit from Indian tax system while enjoying 0% personal tax in UAE.

4.5 No Withholding Tax (Critical Advantage)

Comprehensive Exemption:

• Zero WHT on dividend distributions
• Zero WHT on interest payments
• Zero WHT on royalty payments
• Zero WHT on technical service fees

Strategic Implications for Cross-Border Structuring:

UAE Company Paying Indian Service Provider:

UAE Company → AED 100,000 service fee → Indian Company

– UAE WHT: 0% (no deduction)

– India receives: ₹22,50,000 (full amount)

– India tax: 25.168% on receipt (approx. ₹5,66,280)

– Net to Indian company: ₹16,83,720

 

Comparison: Singapore Company Paying Indian Service Provider:

Singapore Company → SGD 30,000 service fee → Indian Company

– Singapore WHT: 0%

– India receives: ₹18,00,000

– India tax: 25.168% (₹4,53,024)

– Net: ₹13,46,976

 

Comparison: US Company Paying Indian Service Provider:

US Company → USD 10,000 service fee → Indian Company

– US WHT: 15% (under India-US DTAA) = USD 1,500

– India receives: USD 8,500 (₹7,14,250)

– India tax: 25.168% on USD 10,000 = ₹2,10,071

– Foreign tax credit: ₹1,26,000 (for US WHT paid)

– Additional India tax: ₹84,071

– Net after all taxes: ₹6,30,179

 

Conclusion: UAE’s 0% WHT environment provides maximum cash flow efficiency for Indian companies compared to other jurisdictions.

India-UAE Double Taxation Avoidance Agreement (DTAA) – Comprehensive Analysis

5.1 Treaty Framework

Original Treaty: Signed 1993 Protocol Amendment: 2022 (enhanced exchange of information) Treaty Type: Comprehensive income and capital tax treaty Model: OECD Model with modifications

Contracting States:

• Republic of India (represented by Ministry of Finance)
• United Arab Emirates (represented by Ministry of Finance)

Treaty Applicability:

• India: Income Tax Act, 1961
• UAE: Federal Corporate Tax (since 2023) and future income taxes

5.2 Tax Residency & Tie-Breaker Rules (Article 4)

Residency Determination:

An entity/individual is resident where they are liable to tax by reason of domicile, residence, place of management, or similar criterion.

Dual Residency Tie-Breaker (for Individuals):

1. Permanent home available → Resident where permanent home exists
2. Center of vital interests → Where personal and economic relations are closer
3. Habitual abode → Where individual habitually resides
4. Nationality → Resident of country of citizenship
5. Mutual agreement → Tax authorities determine by consultation

Dual Residency Tie-Breaker (for Entities):

• Place of Effective Management (POEM) → Where key management and commercial decisions are made

Strategic Insight: Indian promoters must establish genuine UAE POEM for UAE companies:

• Hold board meetings in UAE with documented minutes
• Make strategic decisions in UAE (contracts, investments, expansions)
• Maintain management office in UAE
• Avoid de facto management from India via video calls or correspondence

Indian POEM Rules (Section 115JH):

• Companies with turnover/gross receipts exceeding ₹50 crore face POEM scrutiny
• POEM deemed in India if majority of board meetings held in India
• Active business exception available if genuine overseas operations

5.3 Business Profits Taxation (Article 7)

General Rule: Business profits taxable only in country of residence unless conducted through Permanent Establishment (PE) in other country.

Permanent Establishment Definition (Article 5):

Fixed Place PE:

• Office, branch, factory, workshop
• Mine, oil/gas well, quarry
• Building site or construction project lasting >6 months

Agency PE:

• Agent with authority to conclude contracts on behalf of enterprise
• Agent habitually exercises such authority

Exclusions (No PE Created):

• Facilities for storage, display, or delivery of goods
• Purchasing activities only
• Preparatory or auxiliary activities
• Independent agent acting in ordinary course of business

Strategic Implications:

UAE Company Selling to Indian Customers:

• No PE in India if:
  • Sales conducted from UAE
  • No fixed place of business in India
  • No dependent agent in India
  • Customer support is auxiliary only
• Profits not taxable in India

UAE Company with India Operations:

• PE created if:
  • Branch office or project office in India >6 months
  • Indian employees with contract authority
  • Regular business premises in India
• Profits attributable to PE taxable in India at 40%+

Recommended Structure for Indian Sales:

UAE Company (0% tax)

     ↓ (Sells goods/services to Indian customers)

Indian Customers

     ↓ (Payments to UAE)

No PE in India if:

– Orders received in UAE

– Contracts executed in UAE

– No fixed place of business in India

 

Alternative with India Presence:

UAE Company (0% tax, substance-compliant)

     ↓ (Arm’s length commission)

Indian Marketing Agent / Distributor (Indian tax resident)

     ↓ (Sells to Indian customers)

Indian Customers

 

Agent/Distributor:

– Earns commission (10-15% typical)

– Pays Indian corporate tax (25.168%)

– No PE created for UAE company

 

5.4 Dividend Taxation (Article 10)

Withholding Tax Rates:

Dividend Scenario	Maximum WHT Rate
General rate	10%
At least 10% holding	10%

Conditions for Treaty Benefits:

• Dividend paid by resident company to resident of other state
• Beneficial owner must be treaty country resident
• Subject to Limitation of Benefits (LOB) and Principal Purpose Test (PPT)

Practical Application:

Scenario 1: UAE Company Paying Dividend to Indian Shareholder

UAE Company (Free Zone, 0% tax on profits)

     ↓ AED 1,000,000 dividend

Indian Individual/Company Shareholder

• UAE WHT: 0% (UAE has no dividend WHT)
• India taxation:
  • For individuals: Taxable at applicable slab rates (up to 42.744%)
  • For companies: Taxable at 25.168%
• Foreign tax credit: Nil (no UAE tax paid)
• Effective tax: Full India tax applicable

Scenario 2: Indian Company Paying Dividend to UAE Shareholder

Indian Company

     ↓ ₹10,000,000 dividend

UAE Company/Individual Shareholder

 

• India WHT: 10% under DTAA (₹1,000,000 withheld)
• Net receipt: ₹9,000,000 to UAE
• UAE tax: 0% (dividends not taxed in UAE)
• Effective tax: 10% only

Comparison with Domestic Rate:

• Without DTAA: India WHT on dividends to non-residents = 20% (plus surcharge and cess)
• With DTAA: Reduced to 10%
• Tax savings: 10% of dividend amount

Strategic Dividend Planning:

For Maximum Tax Efficiency:

1. Accumulate profits in UAE Free Zone company (0% tax)
2. Defer dividend distribution to Indian shareholder
3. Reinvest profits in UAE or third countries
4. Extract value through:
   • Capital gains route (sell UAE company shares – may be 0% tax)
   • Loan-back arrangements (interest deductible in UAE, 10-12.5% WHT in India)
   • Service fee arrangements (deductible expense, 10% WHT)

5.5 Interest Taxation (Article 11)

Withholding Tax Rate:

Interest Scenario	Maximum WHT Rate
Interest on loans	12.5%
Interest on bonds/securities	12.5%

Exemptions:

• Interest paid to government → 0%
• Interest paid to central bank → 0%
• Interest on loans guaranteed/insured by government → 0%

Beneficial Ownership Requirement:

• Recipient must be beneficial owner of interest
• Cannot be conduit or agent for third party

Practical Application:

Scenario 1: Indian Company Borrowing from UAE Bank

UAE Bank/Financial Institution

     ↓ AED 10,000,000 loan at 8% interest

Indian Company

     ↓ Annual interest: AED 800,000

• India WHT: 12.5% under DTAA (AED 100,000 withheld)
• Net payment to UAE: AED 700,000
• UAE tax: 0% (interest income not taxed in UAE for qualifying entities)
• Effective tax: 12.5% only
• Indian company deduction: Full AED 800,000 deductible (subject to thin capitalization rules)

Scenario 2: UAE Company Lending to Indian Subsidiary

UAE Parent Company (Free Zone)

     ↓ INR 50,000,000 loan at 10% interest

Indian Subsidiary Company

     ↓ Annual interest: INR 5,000,000

• India WHT: 12.5% under DTAA (INR 625,000 withheld)
• Net receipt in UAE: INR 4,375,000
• Indian subsidiary: INR 5,000,000 deductible (subject to transfer pricing and thin cap rules)
• UAE tax: 0% on interest income (if qualifying Free Zone entity)
• Effective global tax: 12.5%

Comparison with Domestic/Other Jurisdictions:

Lender Jurisdiction	India WHT Rate	Effective Tax Leakage
UAE (DTAA)	12.5%	12.5%
Singapore (DTAA)	10-15%	10-15%
US (DTAA)	10-15%	10-15%
Non-treaty country	20%+	20%+
Domestic rate (no treaty)	20% + surcharge + cess	~23.92%

Indian Thin Capitalization Rules (Critical for Debt Planning):

Section 94B of Income Tax Act:

• Interest deduction limited if debt exceeds 2:1 debt-to-equity ratio
• Applies to interest paid to associated enterprises
• Excess interest disallowed and treated as deemed dividend

Transfer Pricing Implications:

• Interest rate must be arm’s length
• Benchmarking required using CUP (Comparable Uncontrolled Price) or other methods
• Safe harbor: Base rate + 3% for loans from associated enterprises
• Documentation: Master File, Local File, CbCR (if applicable)

Strategic Debt Structuring:

Optimal Structure:

UAE Holding Company (Free Zone, 0% tax)

     ↓ Equity: INR 100 crore

     ↓ Debt: INR 200 crore (2:1 ratio – compliant)

Indian Operating Company

     ↓ Interest at arm’s length rate

     ↓ INR 20 crore annual interest (10% rate)

India WHT: 12.5% = INR 2.5 crore

Net to UAE: INR 17.5 crore (0% UAE tax)

Indian deduction: INR 20 crore (reduces India tax)

 

Tax Efficiency Analysis:

• Without debt: Indian company profit INR 100 crore → India tax 25.168% = INR 25.17 crore
• With debt: Indian company profit INR 80 crore → India tax 25.168% = INR 20.13 crore
• Interest WHT: INR 2.5 crore
• Total India tax: INR 22.63 crore
• Tax savings: INR 2.54 crore (approximately 10% reduction)
• Funds accumulated in UAE: INR 17.5 crore (0% tax environment)

5.6 Royalty and Fees for Technical Services (Article 12)

Withholding Tax Rate:

Payment Type	Maximum WHT Rate
Royalties	10%
Fees for Technical Services (FTS)	10%

Royalty Definition: Payments for use of, or right to use:

• Copyright (literary, artistic, scientific works)
• Patent, trademark, design, model
• Industrial, commercial, scientific equipment
• Industrial, commercial, scientific information/experience (know-how)

FTS Definition (India-UAE DTAA Article 12(4)): Payments for managerial, technical, or consultancy services, including provision of services by technical or other personnel.

Critical Distinction: Unlike some treaties, India-UAE DTAA includes “make available” clause – services that make technical knowledge, skill, or know-how available to the recipient qualify for treaty benefits.

Practical Applications:

Scenario 1: Indian Company Using UAE Software/IP

UAE Company (IP/Software owner)

     ↓ License fee/Royalty: INR 10,000,000

Indian Company (Licensee)

 

• India WHT: 10% under DTAA (INR 1,000,000 withheld)
• Net receipt in UAE: INR 9,000,000
• UAE tax: 0% (if qualifying Free Zone entity)
• Indian company: INR 10,000,000 deductible
• Effective tax: 10% only

Scenario 2: UAE Consultant Providing Technical Services to India

UAE Consulting Company (Free Zone)

     ↓ Technical consultancy: INR 5,000,000

Indian Company

• India WHT: 10% under DTAA (INR 500,000 withheld)
• Net receipt in UAE: INR 4,500,000
• UAE tax: 0% (if qualifying Free Zone entity with substance)
• Effective tax: 10% only

Comparison with Domestic Rates:

Scenario	Without DTAA	With UAE DTAA	Tax Savings
Royalty payment	20% + surcharge + cess ≈ 23.92%	10%	13.92%
FTS payment	20% + surcharge + cess ≈ 23.92%	10%	13.92%

Strategic IP Holding Structures:

Recommended Structure for Indian Businesses:

UAE IP Holding Company (Free Zone, 0% tax)

     ↓ Owns patents, trademarks, copyrights, software

     ↓ License to Indian operating company

Indian Operating Company

     ↓ Pays royalty (10% WHT)

     ↓ Deductible expense in India

     ↓ Reduces Indian taxable profit

 

Tax Efficiency:

• IP developed in India: Transfer to UAE at fair market value (taxable event in India)
• Ongoing royalties: 10% WHT to India, 0% tax in UAE
• IP appreciation: Accumulated in 0% tax jurisdiction
• Global licensing: UAE company licenses to third countries (0% UAE WHT)

Transfer Pricing Compliance (Critical):

Indian TP Rules Apply:

• Royalty rate must be arm’s length
• Benchmarking required using CUP, TNMM, or Profit Split Method
• Safe harbor: Generally 1-5% of sales depending on industry and IP type
• Master File and Local File mandatory
• Form 3CEB certification by chartered accountant

Common Indian Tax Authority Challenges:

1. IP ownership legitimacy – Prove UAE company is genuine IP owner
2. Royalty rate reasonableness – Demonstrate arm’s length pricing
3. Substance in UAE – Show genuine UAE operations (ESR compliance critical)
4. Business purpose – Demonstrate commercial rationale beyond tax savings

Documentation Requirements:

• IP transfer agreements with valuation reports
• License agreements with detailed terms
• Intercompany agreements certified by legal counsel
• Economic substance documentation (employees, office, activities)
• Transfer pricing documentation (comparables analysis, functional analysis)

5.7 Capital Gains Taxation (Article 13)

Taxation Rights:

Asset Type	Taxing Rights
Immovable property	Country where property located
Shares deriving value from immovable property (>50%)	Country where property located
Shares in company (other)	Country of residence only
Business property of PE	Country where PE located
Ships, aircraft, vehicles	Country of residence only
Other assets	Country of residence only

Critical Provision for Indian Investors:

Share Sale Taxation:

• General rule: Taxable only in country of seller’s residence
• Exception: Shares deriving >50% value from immovable property in other country
  • Taxable in country where immovable property located

Practical Scenarios:

Scenario 1: UAE Resident Selling Shares of UAE Company

UAE Individual/Company

     ↓ Sells shares of UAE Free Zone Company

     ↓ Capital gain: AED 5,000,000

Buyer (any location)

 

• UAE tax: 0% (no capital gains tax)
• India tax: 0% (seller is UAE resident, shares are UAE company)
• Total tax: 0%

Scenario 2: Indian Resident Selling Shares of UAE Company

Indian Resident Individual

     ↓ Acquired UAE company shares: AED 1,000,000

     ↓ Sold UAE company shares: AED 3,000,000

     ↓ Capital gain: AED 2,000,000

 

India Tax Treatment:

• Under DTAA: Taxable in India (seller’s residence)
• India capital gains tax:
  • Long-term (>24 months): 20% with indexation
  • Short-term (<24 months): Per income tax slab (up to 42.744%)
• Foreign tax credit: Nil (no UAE tax paid)

Scenario 3: UAE Resident Selling Shares of Indian Company

UAE Company/Individual

     ↓ Sells shares of Indian Private Limited Company

     ↓ Capital gain: INR 50,000,000

 

India Tax Treatment:

• Taxable in India (shares of Indian company)
• Tax rates:
  • Listed equity (>12 months): 12.5% (gains above INR 1.25 lakh)
  • Unlisted equity (>24 months): 20% with indexation
  • Short-term: 20% (for non-residents)
• DTAA relief: Foreign tax credit for India tax when repatriating to UAE

Scenario 4: Complex Real Estate Holdings

UAE Company

     ↓ Owns Indian SPV

     ↓ Indian SPV owns real estate

UAE Investor sells shares of UAE Company

 

Indian Tax Exposure: If >50% of UAE Company’s value derives from Indian immovable property:

• India gains taxing rights under DTAA Article 13(4)
• Deemed indirect transfer provisions apply (Section 9(1)(i))
• Tax rate: 20% long-term / per slab short-term
• Compliance: Indian tax withholding required

Strategic Exit Planning for Indian Investors:

Option 1: Individual Exit from UAE Company (Tax-Free)

Indian entrepreneur establishes UAE tax residency

     ↓ Lives in UAE 183+ days/year

     ↓ Obtains UAE tax residency certificate

     ↓ Sells UAE company shares

     ↓ Capital gains: 0% tax in UAE

     ↓ Not taxable in India (no India tax residency)

 

Option 2: Corporate Exit via Share Sale

Indian Company owns UAE Free Zone Company

     ↓ Sells shares of UAE company

     ↓ Capital gains taxable in India (20% LTCG)

     ↓ Alternative: Liquidate UAE company first

     ↓ Receive dividends (10% WHT under DTAA)

     ↓ Then sell Indian holding company shares to buyer

 

Option 3: Holding Company Restructuring

Before Exit:

Indian Promoter → Indian Holdco → UAE Opco

 

Restructure:

Indian Promoter relocates to UAE (becomes UAE resident)

     ↓ Transfers shares to UAE Holdco

     ↓ Indian Holdco liquidated/sold

UAE Promoter → UAE Holdco → UAE Opco

     ↓ Future exit: 0% capital gains tax

 

Indian Tax Considerations:

• Exit from India tax residency: Deemed sale under Section 9(1)(i)
• NRI exit tax: Capital gains triggered on departure
• Planning: Structure exit before value appreciation

5.8 Tax Residency Certificate (TRC) & Treaty Benefits

Purpose: To claim DTAA benefits, taxpayer must prove residence in treaty country.

TRC Requirements:

From UAE (for Indian tax benefits):

• Issued by Federal Tax Authority (FTA)
• Valid for specific tax year
• Confirms tax residency status in UAE
• Processing time: 2-4 weeks

TRC Application Requirements:

1. UAE residence visa (active)
2. Emirates ID
3. Proof of physical presence in UAE (183+ days)
4. Tenancy contract or property ownership proof
5. Utility bills (DEWA, etc.)
6. Bank statements showing UAE transactions
7. Employment contract or business license
8. Trade license of UAE company (if entrepreneur)

From India (for UAE tax benefits):

• Issued by Income Tax Department
• Apply online through income tax portal
• Valid for specific assessment year
• Processing time: 4-8 weeks

India TRC Application (Form 10FA):

1. PAN card
2. Aadhaar card
3. Proof of India tax payment (for specified period)
4. Residential address proof in India
5. Tax return acknowledgments

Limitation of Benefits (LOB) & Principal Purpose Test (PPT):

Post-BEPS Era Compliance: Even with valid TRC, treaty benefits may be denied if:

LOB Test Fails:

• Entity lacks substantial business activity in residence country
• Entity is conduit or special purpose vehicle
• Less than 50% beneficial ownership by residence country residents

PPT Test Fails:

• Principal purpose of arrangement is to obtain treaty benefits
• Transaction lacks genuine business purpose
• Structure is artificial or contrived

Safe Harbor for Indian Tax Authorities: To avoid LOB/PPT challenges:

1. Genuine commercial operations in UAE (not just tax residency)
2. Economic substance exceeding minimum ESR requirements
3. Qualified employees actively managing business
4. Board meetings and strategic decisions in UAE
5. Detailed documentation of business rationale
6. Arm’s length transactions with India

Form 10F (India Compliance): Non-resident claiming DTAA benefits must provide:

• Tax Residency Certificate
• Form 10F (self-declaration of residency and treaty eligibility)
• Details of beneficial ownership
• Confirmation of PPT compliance

Company Formation Process – Step-by-Step Guide

6.1 Pre-Incorporation Planning (Weeks 1-2)

Strategic Decision Framework:

Step 1: Jurisdiction Selection

Evaluate based on:

• Business activity: Trading vs. services vs. holding vs. IP
• Target markets: UAE mainland vs. international vs. India
• Substance requirements: Can you meet ESR for 0% tax?
• Banking needs: Which banks accept your business model?
• Cost considerations: Free zone fees vs. mainland vs. offshore

Decision Matrix:

If Your Primary Activity Is…	Recommended Structure
International trading/services to non-UAE clients	Free Zone Company (0% tax)
UAE domestic operations, government contracts	Mainland LLC (9% tax on profits >AED 375K)
Holding investments in India/abroad	Free Zone Holding or RAK ICC Offshore
IP licensing to India and others	Free Zone IP Holding Company
E-commerce selling globally	Free Zone E-commerce License
Professional services (consulting)	Free Zone or DIFC/ADGM

Step 2: Corporate Structure Design

Consider:

• Shareholder structure: Individual vs. corporate ownership
• Director requirements: Local vs. foreign directors
• Group structure: Parent-subsidiary vs. flat structure
• Future scalability: Additional entities, jurisdictions

Sample Structures:

Structure A: Simple Single-Layer (For Small Business)

Indian Promoter (Individual)

     ↓ 100% ownership

UAE Free Zone Company (FZE)

     ↓ Operating business

International clients + India clients

 

Structure B: Two-Tier (For Tax Efficiency)

Indian Promoter (Individual, UAE tax resident)

     ↓ 100% ownership

UAE Free Zone Holding Company (FZE) – 0% tax

     ↓ 100% ownership

India Operating Company (Pvt Ltd) – 25.168% tax

     ↓ Pays royalty/service fees (10% WHT)

     ↓ Operating business in India

 

Structure C: Multi-Jurisdiction (For Complex Business)

UAE Free Zone Holding Company (0% tax)

     ↓ Owns multiple entities:

     ├─ India Opco (manufacturing, sales)

     ├─ UAE Trading Opco (international trade)

     ├─ Singapore Opco (Asia-Pacific presence)

     └─ IP Holdco in UAE (licenses IP globally)

 

Step 3: Name Reservation

Naming Rules (UAE):

• Cannot resemble existing company names
• Cannot contain objectionable words
• Should reflect business activity
• For Free Zone: Must include FZE, FZ-LLC, or jurisdiction name
• For Mainland: Must include LLC or Arabic equivalent

Name Approval Process:

• Submit 3 name options to authorities
• Approval within 1-2 business days
• Name reservation valid for 30 days (renewable)

Step 4: Engage Professional Service Provider

Services Provided:

• Company formation advisory
• License procurement
• Visa processing assistance
• Banking introduction
• Registered office/PRO services
• Compliance management

Costs (Approximate 2025):

• Free Zone formation: USD 3,000-8,000 (depending on zone and package)
• Mainland formation: USD 5,000-12,000
• DIFC/ADGM formation: USD 10,000-25,000
• Offshore formation: USD 2,500-5,000

6.2 Documentation & Incorporation (Weeks 3-4)

Required Documents:

For Individual Shareholders:

1. Passport copy (valid for 6+ months)
2. Passport-size photographs (recent, white background)
3. Residential address proof (utility bill, bank statement)
4. Bank reference letter (showing good standing)
5. Professional reference letter (from lawyer, accountant, or banker)
6. CV/Resume (showing business experience)
7. No Objection Certificate (if employed elsewhere)

For Corporate Shareholders:

1. Certificate of Incorporation
2. Memorandum & Articles of Association
3. Certificate of Good Standing (issued within 3 months)
4. Board Resolution authorizing investment in UAE
5. Register of Directors and Shareholders
6. Audited financial statements (last 2 years)
7. Ultimate Beneficial Owner (UBO) declaration
8. Passport copies of all directors

Document Authentication:

• Embassy attestation required for foreign documents
• Apostille accepted from Hague Convention countries
• Translation to Arabic or English if required
• Processing time: 1-3 weeks depending on country

Incorporation Documents Prepared:

Memorandum of Association (MOA):

• Company objectives and authorized activities
• Share capital and shareholding structure
• Registered office address
• Signatory authorities

Articles of Association (AOA):

• Internal governance rules
• Director appointment and removal procedures
• Shareholder meetings and voting rights
• Profit distribution mechanisms

Shareholder Agreement (Recommended):

• Transfer restrictions
• Drag-along/tag-along rights
• Dispute resolution mechanisms
• Exit procedures

Incorporation Timeline:

Action	Timeline
Name approval	1-2 days
Document preparation & authentication	1-3 weeks
License application submission	1 day
Authority approval	3-7 days
License issuance	1-2 days
Total: Initial Incorporation	2-4 weeks

6.3 Post-Incorporation Setup (Weeks 5-8)

Step 1: Office Space Lease

Options:

Flexi-Desk (Virtual Office):

• Cost: AED 5,000-15,000/year
• Shared workspace access
• Business address for license
• Not sufficient for substance requirements

Dedicated Office:

• Cost: AED 25,000-100,000+/year
• Private office space
• Meets substance requirements
• Customizable workspace

Considerations:

• Free zone offices typically included in license packages (first year)
• Mainland requires separate premises lease from Ejari system
• Office size should be proportionate to declared activity

Step 2: Immigration & Visa Processing

UAE Residence Visa Benefits:

• Legal residency in UAE
• Emirates ID (essential for banking, contracts)
• Tax residency eligibility (with 183+ days presence)
• Family sponsorship capabilities

Visa Quota: Number of visas depends on:

• Office space size (typically 1 visa per 120-250 sq ft)
• License type (some allow more visas)
• Free zone vs. mainland (different allocation rules)

Visa Process:

1. Entry permit application (2-3 days)
2. Medical fitness test in UAE (1 day)
3. Emirates ID application (1-2 weeks)
4. Visa stamping in passport (1-2 days)
5. Total timeline: 2-4 weeks from entry

Costs per Visa (Approximate):

• Entry permit: AED 300-500
• Medical test: AED 300-500
• Emirates ID: AED 370
• Visa stamping: AED 3,000-5,000
• Total per person: AED 4,000-6,500

Step 3: Corporate Bank Account Opening

Timeline: 4-12 weeks (highly variable)

Bank Selection Criteria:

• International connectivity: SWIFT capabilities, correspondent banking
• Online banking: Digital platforms for global operations
• Currency options: Multi-currency accounts
• Relationship manager: Dedicated support for corporate needs
• Fees: Monthly maintenance, transaction charges

Popular Banks for International Business:

UAE Local Banks:

• Emirates NBD: Largest UAE bank, strong digital platform
• First Abu Dhabi Bank (FAB): International network
• Abu Dhabi Commercial Bank (ADCB): Competitive rates
• Mashreq Bank: Good for SMEs and startups

International Banks:

• HSBC: Global network, recognized worldwide
• Standard Chartered: Strong Asia connectivity
• Citibank: Premium services, higher requirements
• Barclays: European connectivity

Account Opening Requirements:

1. Trade license (certified copy)
2. Memorandum & Articles of Association
3. Certificate of Incorporation
4. Office lease agreement
5. Visa copies of shareholders and directors
6. Emirates ID of signatory
7. Business plan (detailed, realistic)
8. Financial projections (3-year forecast)
9. Source of funds documentation (bank statements, income proof)
10. Customer/supplier contracts (if available)
11. Professional references (from lawyers, accountants)
12. Proof of address for all beneficial owners

Enhanced Due Diligence for India-Linked Entities:

Banks may request additional:

• Explanation of business model and UAE substance
• India tax compliance certificates
• Source of initial capital (especially if from India)
• India bank statements (6-12 months)
• Expected transaction volumes and counterparties
• Purpose of UAE entity (commercial rationale)

Common Rejection Reasons:

• Insufficient economic substance evidence
• Unclear business model or purpose
• High-risk activity profile
• Poor documentation quality
• Concerns about money laundering risk
• Lack of genuine business activity

Success Strategies:

1. Visit UAE in person for account opening (increasingly mandatory)
2. Prepare comprehensive documentation (over-document rather than under)
3. Demonstrate substance (office photos, employee contracts, business cards)
4. Show transaction history (if transferring from another bank)
5. Engage relationship manager early (before formal application)
6. Consider multiple banks simultaneously (apply to 2-3 banks)

Alternative: EMI (Electronic Money Institution) Accounts

For faster banking access:

• Wise Business (formerly TransferWise)
• Payoneer
• Currenxie
• Airwallex

Limitations:

• Not full banking licenses (limited services)
• May not satisfy substance requirements
• Some restrictions on business types
• Should not replace traditional bank account

Step 4: Tax Registration

Federal Tax Authority (FTA) Registration:

Corporate Tax Registration (Mandatory from June 2023):

• Apply within 3 months of incorporation
• Obtain Tax Registration Number (TRN)
• No fee for registration
• Online process via FTA portal

VAT Registration:

Mandatory if:

• Taxable supplies exceed AED 375,000/year

Voluntary if:

• Taxable supplies below AED 375,000 but business chooses to register

Process:

• Online application via FTA portal
• Supporting documents (trade license, financial projections)
• Approval within 20 business days
• TRN issued upon approval

Economic Substance Regulations (ESR) Registration:

• Register within 6 months of financial year-end
• Submit ESR notification annually
• Confirm if conducting relevant activities
• If yes, submit ESR report demonstrating substance

6.4 Ongoing Compliance Calendar

Annual Obligations:

Compliance Item	Deadline	Penalty for Non-Compliance
Trade License Renewal	Before expiry date	License suspension, AED 1,000-5,000 fine
Corporate Tax Return	9 months after financial year-end	AED 10,000+ penalties
VAT Returns (if registered)	28 days after quarter/month end	AED 1,000-5,000 per return
ESR Notification	6 months after FY-end	AED 10,000-300,000
ESR Report (if applicable)	12 months after FY-end	AED 10,000-300,000
Audited Financial Statements	Within timeframe specified by license	Renewal denial
UBO Disclosure Updates	Within 15 days of changes	Administrative penalties

Recommended Annual Budget for Compliance:

Item	Annual Cost (AED)
License renewal	15,000-50,000
Office lease	25,000-100,000
Auditor fees	8,000-25,000
PRO services	5,000-15,000
Corporate secretarial	3,000-10,000
Tax compliance	5,000-20,000
Total Annual Operating Cost	60,000-220,000

Practical Cross-Border Structuring Strategies

7.1 India-UAE Trading Structure

Objective: Optimize taxation on India-UAE bilateral trade

Structure:

UAE Trading Company (Free Zone, 0% tax)

     ↓ Purchases from global suppliers

     ↓ Sells to Indian importers

Indian Importer Companies

     ↓ Payments in USD/AED to UAE

 

Tax Efficiency:

• UAE company profit: 0% tax (qualifying Free Zone entity)
• India import duty: Standard customs duty applicable
• India GST: On import value + duty + margin
• No withholding tax: Pure trading transactions, no royalty/interest

Transfer Pricing Considerations:

• UAE company should earn arm’s length margin (typically 3-8% for trading)
• Transactional Net Margin Method (TNMM) for benchmarking
• Maintain contemporaneous documentation

Substance Requirements (Critical):

• Purchase orders issued from UAE
• Sales contracts executed in UAE
• Negotiations conducted by UAE team
• Inventory management (if any) in UAE or third country
• Banking transactions through UAE account

Logistics Flow:

Supplier (China/Europe/US)

     ↓ Goods shipped to India (direct or via UAE)

     ↓ Invoice from UAE Trading Company

Indian Customer

     ↓ Payment to UAE bank account

 

Documentation:

• Purchase invoices from suppliers to UAE company
• Sales invoices from UAE company to Indian buyers
• Bill of lading showing shipment details
• Certificates of origin (UAE certificate for preferential duty if applicable)
• Banking records showing fund flows

Advantages:

• Working capital accumulated in 0% tax jurisdiction
• Currency flexibility (hold USD, EUR, AED)
• Global expansion platform
• India DTAA benefits if UAE company invests back into India

7.2 India-UAE Service/Software Structure

Objective: Tax-efficient delivery of services/software to Indian clients

Structure:

UAE Service/Software Company (Free Zone, 0% tax, substance)

     ↓ Provides software licenses or professional services

     ↓ Invoice to Indian clients

Indian Client Companies

     ↓ Pay service fees/royalties with WHT

 

Tax Treatment:

If structured as “Software License” (Royalty):

• India WHT: 10% under DTAA
• UAE tax: 0% (qualifying Free Zone entity)
• Effective tax: 10%

If structured as “Software Services” (FTS):

• India WHT: 10% under DTAA
• UAE tax: 0%
• Effective tax: 10%

If structured as “Pure Services” (Non-FTS):

• India WHT: Potentially nil if no “make available” of technology
• UAE tax: 0%
• Effective tax: 0%
• Risk: Indian tax authorities may recharacterize as FTS

Critical Distinction – “Make Available” Clause:

FTS (10% WHT applies) when:

• Services make technical knowledge available to Indian client
• Indian client can independently use the knowledge
• Transfer of know-how occurs

Not FTS (0% WHT) when:

• Services are pure execution without knowledge transfer
• Stewardship services (routine management)
• Indian client cannot independently replicate

Recommended Service Structure:

UAE Company employs qualified professionals

     ↓ Develops software/delivers services in UAE

     ↓ Indian client receives output (not underlying IP/know-how)

     ↓ Ongoing support provided from UAE

 

Substance Requirements:

• Developers/consultants employed in UAE (on UAE residence visa)
• Development/service delivery in UAE (workspace, equipment)
• Client contracts signed in UAE
• Project management from UAE
• Deliverables created in UAE (code repositories, servers in UAE)

Documentation:

• Employment contracts for UAE-based team
• Office lease and workspace photos
• Project documentation showing UAE nexus
• Timesheets for UAE employees
• Client testimonials confirming UAE-based delivery

References and verified Sources Links

• https://tax.gov.ae/
• https://www.moec.gov.ae/
• https://mof.gov.ae/tax-agreements/
• https://mof.gov.ae/
• https://www.centralbank.ae/
• https://www.sca.gov.ae/