India–UAE DTAA: Tax Residence, PE, Dividends, Capital Gains and FTC

Summary: The India–UAE DTAA provides a framework for allocating taxing rights between India and the UAE and for granting relief where the same income is taxed in both jurisdictions, but treaty benefits are not automatic. A proper analysis begins with domestic tax residence in both countries and then examines treaty residence under Article 4, including applicable tie-breaker principles for individuals and the relevant residence considerations for companies. Business owners must also examine permanent establishment exposure, business-profit attribution, the character of income, beneficial ownership, commercial substance, withholding requirements and applicable treaty protocols. The treaty contains separate provisions for business profits, immovable property, dividends, interest, royalties, capital gains, professional services, employment income, directors’ fees and relief from double taxation. UAE incorporation, a residence visa, an Emirates ID or a Tax Residency Certificate alone does not necessarily establish the intended treaty position. The practical facts—including management decisions, premises, personnel, banking authority, employee travel, contracts, commercial risks and the location from which business is actually conducted—can be critical. Foreign tax credit claims also require attention to the applicable Indian provisions and procedural documentation, including Form 67 where relevant. India–UAE transactions may additionally involve transfer pricing, FEMA, overseas-investment rules, GST, UAE VAT, UAE Corporate Tax, customs, company law and banking compliance. Business owners should therefore evaluate treaty and domestic-law consequences while designing the transaction rather than attempting to establish treaty entitlement after income has arisen or tax has been withheld.

India–UAE DTAA: A Practical Guide for Business Owners

The commercial relationship between India and the United Arab Emirates has become increasingly integrated. Indian entrepreneurs establish companies in Dubai, UAE businesses invest in India, professionals serve clients across both countries, and business owners frequently retain income-producing assets in India after relocating to the Emirates.

These arrangements can expose the same income to the tax laws of both jurisdictions. The India–UAE Double Taxation Avoidance Agreement, commonly known as the India–UAE DTAA, provides a framework for deciding which country may tax particular income and how relief should be provided when both countries have taxing rights.

The treaty is valuable, but it is also widely misunderstood. A UAE residence visa does not automatically establish treaty residence. A Dubai company does not automatically fall outside Indian taxation. Similarly, a Tax Residency Certificate does not cure a structure that lacks commercial substance.

Business owners must examine the treaty together with the domestic tax laws of both countries, the relevant protocols, procedural requirements and the actual manner in which their businesses operate.

Understanding the purpose of the DTAA

The India–UAE DTAA does not offer a blanket exemption from tax. Its principal purpose is to allocate taxing rights between India and the UAE and provide relief where the same income is taxed in both countries.

The treaty deals with matters such as:

• Tax residence;
• Permanent establishment;
• Business profits;
• Income from immovable property;
• International transport;
• Dividends;
• Interest;
• Royalties;
• Capital gains;
• Professional services;
• Employment income;
• Directors’ fees;
• Pensions;
• Relief from double taxation;
• Exchange of information; and
• Resolution of treaty-related disputes.

A treaty normally restricts or modifies taxation arising under domestic law. It does not generally create a tax liability where domestic legislation does not impose one.

The correct sequence is therefore to identify the tax treatment under domestic law and then examine whether the DTAA provides a more beneficial result.

For periods governed by the Income-tax Act, 1961, Section 90 provides the statutory basis for India’s tax treaties. Under the Income-tax Act, 2025, applicable from Tax Year 2026–27, the corresponding framework is principally contained in Section 159. Transitional periods must be examined under the legislation applicable to the relevant income year.

Why tax residence must be examined first

Most treaty benefits are available only to a person who qualifies as a resident of India or the UAE for treaty purposes. Residence is therefore the starting point of any DTAA analysis.

Tax residence should not be confused with nationality, citizenship, immigration status or the location of a bank account.

An Indian citizen may qualify as a UAE tax resident. A person holding a UAE residence visa may still be an Indian tax resident. In certain circumstances, the domestic laws of both countries may initially treat the same person as resident.

Residence must be examined at two levels:

• Residence under the domestic law of each country; and
• Residence under Article 4 of the India–UAE DTAA.

Both tests are important. A person cannot safely claim treaty benefits merely by producing an Emirates ID or UAE visa.

Residence of individuals

Indian tax residence is primarily determined by physical presence and other statutory conditions. Special rules can apply to Indian citizens and persons of Indian origin visiting India. Income thresholds, the purpose of an individual’s stay and the number of days spent in India may affect the result.

Indian citizens who claim not to be liable to tax in another country may also need to examine the deemed-residence provisions. The expression “liable to tax” is a legal concept and should not be confused with whether tax was actually paid.

The treaty contains specific conditions for determining whether an individual qualifies as a UAE resident. Following the protocol amendments, physical presence in the UAE during the relevant calendar year is particularly important.

A business owner should preserve reliable evidence of physical presence, including passport records, immigration reports and travel schedules. In a treaty claim, an approximate day count prepared from memory may not be sufficient.

Domestic UAE tax-residency rules also recognise circumstances based on physical presence and the location of a person’s principal residence and financial or personal interests. These domestic rules can be relevant to obtaining a UAE Tax Residency Certificate. However, the domestic UAE test and the treaty-specific definition must not be treated as interchangeable without examining the applicable treaty language.

Dual residence and tie-breaker rules

An individual may satisfy the domestic residence conditions of both countries. Article 4 of the DTAA contains tie-breaker principles intended to identify a single treaty residence.

The analysis generally proceeds through factors such as:

• The country in which the individual has a permanent home;
• The country with which personal and economic relations are closer;
• The individual’s habitual abode;
• Nationality; and
• Resolution by the competent authorities where the earlier tests do not resolve the matter.

The centre of vital interests test is especially factual. Authorities may consider where the person’s family lives, where businesses are managed, where investments are controlled and where important personal and commercial relationships are maintained.

For example, an entrepreneur may spend substantial time in Dubai but continue to direct an Indian business, maintain a family home in India and make major investment decisions from India. In such a case, merely counting days may not provide the complete answer.

Residence of a UAE company

A UAE incorporation certificate establishes the company’s legal existence, but it does not necessarily resolve its Indian tax residence.

Indian law contains the place of effective management test for determining the residence of a foreign company. Broadly, the test examines where key management and commercial decisions necessary for conducting the business as a whole are actually made.

The legal address stated on a UAE trade licence is not necessarily the place where the company is effectively managed.

Consider a UAE company owned by an Indian resident. The company uses a shared address in Dubai, has no operational staff in the UAE, and all banking, contracting, pricing and strategic decisions are controlled from India. Such facts may create a significant Indian residence risk, notwithstanding the UAE incorporation.

A genuine UAE operation should be supported by evidence such as:

• Board and management decisions made in the UAE;
• UAE-based directors or senior personnel exercising real authority;
• Appropriate premises;
• Employees or outsourced resources performing genuine functions;
• Local operating expenditure;
• Accounting and statutory records;
• Control over the company’s bank accounts;
• Commercial correspondence; and
• Evidence showing where business risks are managed.

Substance cannot be established merely by preparing board minutes after the event. The documents should reflect how the business actually functions.

Business profits and permanent establishment

Article 7 of the DTAA deals with business profits. As a general principle, the profits of an enterprise of one country are taxable only in that country unless the enterprise carries on business in the other country through a permanent establishment situated there.

If a permanent establishment exists, the other country may tax the profits attributable to that establishment.

Article 5 contains the permanent-establishment framework. A permanent establishment ordinarily involves a fixed place through which the business is wholly or partly carried on. It may include a:

• Place of management;
• Branch;
• Office;
• Factory;
• Workshop;
• Mine, oil or gas well, quarry or other place of extraction; or
• Building, construction, assembly or installation project continuing beyond the treaty threshold.

The treaty also addresses service activities and dependent agents. A business may therefore create a permanent establishment even without registering a branch or subsidiary in the other country.

A UAE company could face an Indian permanent-establishment exposure where, depending on the facts:

• Its employees regularly perform core services in India;
• It has continuing access to an Indian office;
• An Indian representative habitually exercises authority for the company;
• Employees negotiate or finalise important contractual terms in India;
• A project continues beyond the treaty’s duration threshold; or
• The supposed support function in India is actually an essential part of the revenue-generating business.

Not every presence creates a permanent establishment. Certain activities that are genuinely preparatory or auxiliary may fall outside the definition. Similarly, business conducted through a legally and economically independent agent acting in the ordinary course of its business may receive different treatment.

The description used in an agreement is not decisive. Authorities will normally examine what employees and agents actually do.

Attribution of profits

The existence of a permanent establishment does not automatically make the foreign enterprise’s entire global profit taxable in the other country. The relevant country may tax the profit attributable to the permanent establishment.

This requires a functional and factual examination of:

• Activities performed;
• Assets used;
• Personnel involved;
• Risks assumed;
• Revenue generated;
• Direct expenses;
• Shared administrative costs; and
• Dealings with the foreign head office.

Businesses should maintain reliable segmental records. Where accounts do not identify the revenue and expenses relating to the permanent establishment, profit attribution can become contentious.

Dividends, interest and royalties

The treaty contains separate distributive rules for passive and investment income.

Dividends

Under Article 10, dividends may be taxed in the recipient’s country of residence. The country in which the company paying the dividend is resident may also tax the dividend, subject to the treaty ceiling where the recipient is its beneficial owner.

For a qualifying UAE resident receiving dividends from an Indian company, the India–UAE DTAA generally limits Indian tax to 10% of the gross dividend.

The rate should not be applied without examining:

• Treaty residence;
• Beneficial ownership;
• Tax Residency Certificate;
• Form 10F requirements;
• Connection with a permanent establishment;
• Anti-abuse provisions; and
• Indian withholding procedures.

Interest

Article 11 permits the source country to tax qualifying interest, subject to treaty limitations where the recipient is the beneficial owner.

Under the treaty, the source-country rate is generally restricted to:

• 5% of the gross interest in specified banking cases; and
• 12.5% of the gross interest in other qualifying cases.

The precise treatment depends on the status of the lender and the nature of the debt claim. Where related parties agree to an interest amount exceeding what independent parties would have accepted, treaty protection may not extend to the excessive portion.

Royalties

Article 12 addresses royalties. The treaty generally restricts source-country tax on qualifying royalties to 10% of the gross amount where the recipient is the beneficial owner.

Classification is often more difficult than determining the rate. A payment described as a consultancy fee may contain a royalty element if it grants rights to use intellectual property. Conversely, a payment for an ordinary service should not be called a royalty merely because the provider used technology or specialised knowledge.

The agreement and the parties’ actual conduct should establish:

• What rights were granted;
• Whether intellectual property may be reproduced or commercially exploited;
• Whether the customer obtained only the result of a service;
• Whether confidential commercial knowledge was transferred; and
• Whether the payment is connected with a permanent establishment.

Technical and consultancy services

Cross-border service payments require particular care under the India–UAE treaty. Businesses sometimes assume that every technical or consultancy payment is subject to a standard treaty withholding rate. That approach can produce an incorrect result.

The payment may need to be examined as:

• Business profits under Article 7;
• Royalty under Article 12;
• Independent professional income;
• Income attributable to a permanent establishment; or
• Another category under the treaty.

Suppose a UAE consulting company prepares a commercial feasibility report for an Indian customer entirely from its Dubai office. The company has no office, personnel or dependent agent in India. The analysis may be substantially different from a situation in which its consultants spend several months working from the customer’s Indian premises.

The contract, location of performance, employee travel, intellectual-property provisions and business presence should all be reviewed before determining withholding.

Capital gains

Article 13 allocates taxing rights over capital gains.

Gains from the transfer of immovable property may generally be taxed in the country where the property is situated. Gains from assets forming part of a permanent establishment may generally be taxed in the country where that establishment is located.

Special provisions apply to ships, aircraft, shares and other property. The protocol amending the treaty is particularly important for share transfers. Business owners should not rely on older summaries suggesting that all gains earned by a UAE resident from Indian shares are automatically taxable only in the UAE.

Before a share or asset sale, the parties should examine:

• The legal nature of the asset;
• The residence of the company whose shares are sold;
• Whether the asset derives value from immovable property;
• Whether it is connected with a permanent establishment;
• The acquisition and disposal dates;
• Indian domestic capital-gains provisions;
• Applicable treaty amendments;
• Anti-abuse provisions; and
• The purchaser’s withholding obligation.

This review should be completed before signing or closing the transaction. Once consideration has been paid and tax withheld, correcting an incorrect position can be costly and time-consuming.

Employment and directors’ remuneration

Article 15 generally provides that employment income is taxable in the employee’s country of residence unless employment is exercised in the other country.

The host country may tax remuneration connected with work physically performed there. A short-term assignment exception may be available if all the treaty conditions are satisfied. These ordinarily consider:

• Whether the employee’s presence exceeds 183 days;
• Whether remuneration is paid by, or on behalf of, an employer resident in the host country; and
• Whether the remuneration is borne by a permanent establishment in the host country.

Meeting the day-count condition alone is not sufficient. The employer and permanent-establishment conditions must also be considered.

Article 16 separately addresses directors’ fees. Remuneration received in the capacity of a board member may generally be taxed in the country in which the company is resident.

A director who also performs executive duties may receive two distinct forms of remuneration. Board fees and employment salary should be separately identified in the resolutions, agreements and payroll records.

Relief from double taxation

The DTAA does not always assign exclusive taxing rights to one country. Certain income may be taxed in the source country and again form part of taxable income in the taxpayer’s country of residence.

Article 25 provides the mechanism for eliminating such double taxation, generally through a tax credit.

Where an Indian resident has paid eligible tax in the UAE on income that is also taxable in India, the credit available in India is subject to Indian law and the treaty. It is ordinarily restricted to the lower of:

• Eligible foreign tax paid on the income; or
• Indian tax attributable to that income.

The credit does not ordinarily convert excess foreign tax into a refund from the Indian Government.

The introduction of UAE Corporate Tax has made this issue more relevant. UAE companies and certain taxable business activities may now have an actual UAE corporate-tax liability. Where the same income is also taxed in India, treaty relief and the applicable Indian foreign-tax-credit procedure should be examined.

Form 67 and supporting evidence

For periods governed by the relevant Indian foreign-tax-credit rules, an Indian resident claiming credit for foreign tax may be required to furnish Form 67 electronically.

The taxpayer should maintain:

• A foreign tax return, where applicable;
• A certificate or statement from the foreign tax authority;
• A withholding certificate;
• Proof that foreign tax was paid;
• A computation reconciling foreign and Indian income;
• Currency-conversion workings;
• Country-wise and income-wise tax-credit calculations; and
• Evidence of any refund, adjustment or dispute concerning the foreign tax.

The prescribed filing period should be verified for the relevant tax year. Procedural defaults can lead to questions even where the substantive credit is otherwise supportable.

Tax Residency Certificate and Form 10F

A non-resident claiming treaty benefits in India is generally required to obtain a Tax Residency Certificate from the government of the country of residence.

UAE residents may apply for a Tax Residency Certificate through the Federal Tax Authority’s EmaraTax platform, subject to the applicable eligibility conditions and documentation.

An individual may be required to provide documents relating to identity, immigration, accommodation and physical presence. A company may need to provide its incorporation documents, trade licence, lease, financial statements and evidence of management or business activity.

Where the Tax Residency Certificate does not include all the information prescribed under Indian law, Form 10F may also be required.

A TRC is essential evidence, but it does not conclusively establish every element of a treaty claim. Tax authorities may still examine:

• Beneficial ownership;
• Nature of the income;
• Permanent establishment;
• Commercial substance;
• Anti-abuse rules; and
• Consistency between the legal documents and actual conduct.

Beneficial ownership and commercial substance

The dividend, interest and royalty provisions refer to the beneficial owner of the income.

The person receiving money in its bank account is not necessarily its beneficial owner. If a UAE company is required to pass the amount to another party, has no control over the income and assumes no meaningful commercial risk, it may be regarded as an intermediary or conduit.

Relevant evidence may include:

• Authority to use and retain the income;
• Contractual obligations to pass on the payment;
• Financial capacity;
• Personnel and operational functions;
• Control over relevant intellectual property or investments;
• Risk assumed by the entity; and
• Commercial reasons for its involvement.

The DTAA should not be used to route income through a UAE entity created primarily to obtain a lower tax rate.

A defensible structure should have a genuine commercial purpose. The entity should perform functions, control risks and maintain resources appropriate to its activities. A trade licence and bank account, standing alone, do not prove commercial substance.

Interaction with transfer pricing, FEMA and indirect taxes

Treaty eligibility is only one part of an India–UAE transaction.

Related-party dealings between Indian and UAE entities may be subject to transfer-pricing rules. Management fees, royalties, loans, guarantees, cost allocations and trading margins should be supported by agreements and arm’s-length analysis.

The transaction may also require consideration of:

• Foreign Exchange Management Act requirements;
• Overseas-investment rules;
• Indian withholding tax;
• Goods and Services Tax;
• UAE VAT;
• UAE Corporate Tax;
• Customs regulations;
• Company law;
• Banking compliance; and
• Anti-money-laundering obligations.

For example, the DTAA may limit Indian income tax on a payment, but it does not eliminate FEMA documentation, GST analysis or transfer-pricing requirements.

Practical case study

Assume an Indian entrepreneur establishes a consulting company in Dubai. The company invoices Indian customers, but the owner continues to live primarily in India. All proposals are prepared in India, contracts are negotiated from India, internet banking is controlled from India and the company has no operational staff in the UAE.

The owner may believe that the income belongs to a UAE company and is therefore outside Indian taxation. In practice, the arrangement raises several questions:

• Is the company effectively managed from India?
• Does it have an Indian fixed-place or service permanent establishment?
• Are its profits attributable to activities performed in India?
• Is the owner receiving salary, directors’ fees or business income?
• Has the UAE entity demonstrated beneficial ownership and substance?
• Have Indian foreign-asset and overseas-investment requirements been satisfied?
• Do related-party transactions require transfer-pricing support?

The answer cannot be obtained from the incorporation certificate. The day-to-day operating facts will determine the risk.

Contrast this with a UAE company that has its own management, employees, premises, customers, expenditure and decision-making processes in Dubai. Its personnel perform services from the UAE, and Indian visits are limited and properly documented. Although each transaction must still be analysed, the intended UAE structure is supported by stronger commercial evidence.

Common errors to avoid

Business owners frequently weaken otherwise valid treaty positions by:

• Treating a UAE residence visa as proof of treaty residence;
• Ignoring Indian residence and deemed-residence provisions;
• Managing a UAE company entirely from India;
• Claiming treaty rates without a valid TRC;
• Failing to furnish Form 10F where required;
• Ignoring permanent-establishment exposure;
• Relying on treaty summaries published before later protocols;
• Assuming every service payment has the same tax treatment;
• Claiming foreign tax credit without proper evidence;
• Ignoring beneficial ownership;
• Using agreements that do not match actual conduct;
• Failing to document related-party services;
• Overlooking FEMA and overseas-investment reporting; or
• Reviewing tax only after payment or completion of a transaction.

Conclusion

The India–UAE DTAA provides an essential framework for individuals and businesses operating between the two countries. Its benefits, however, are not automatic.

A proper treaty analysis begins with residence and then examines the character of income, source of income, permanent establishment, beneficial ownership, withholding tax and relief from double taxation. It must also consider the relevant domestic legislation, treaty protocols and procedural documentation.

For business owners, the most effective approach is to address these matters while designing the transaction. Management arrangements, contracts, employee travel, banking authority, accounting records and commercial substance should support the intended tax position from the beginning.

A structure created for genuine commercial reasons and supported by consistent evidence is far more defensible than a treaty claim assembled only after the transaction has been questioned.

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Disclaimer: This article is intended solely for general educational and informational purposes. It does not constitute legal, tax, investment or professional advice. Treaty provisions, domestic legislation, procedural rules and official interpretations may change. The tax treatment of a transaction depends on its particular facts and the law applicable to the relevant period. Readers should examine the current statutory provisions, treaty text and protocols and obtain professional advice before entering into a transaction or claiming treaty relief.

References

1. Agreement between the Government of the Republic of India and the Government of the United Arab Emirates for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, notified on 22 September 1993.

2. Protocol amending the India–UAE Double Taxation Avoidance Agreement, signed on 26 March 2007 and notified by the Government of India on 28 November 2007.

3. Income Tax Department, Government of India, UAE Comprehensive Agreement: [https://www.incometaxindia.gov.in/Pages/international-taxation/dtaa.aspx](https://www.incometaxindia.gov.in/Pages/international-taxation/dtaa.aspx)

4. Income-tax Act, 1961, Section 90.

5. Income-tax Act, 2025, Section 159.

6. Income-tax Rules, 1962, Rule 128, relating to foreign tax credit for periods governed by the said Rules.

7. Income Tax Department, Form 67 User Manual: [https://www.incometax.gov.in/iec/foportal/help/how-to-file-form-67](https://www.incometax.gov.in/iec/foportal/help/how-to-file-form-67)

8. Federal Tax Authority, United Arab Emirates, Tax Residency Certificate service: [https://tax.gov.ae/](https://tax.gov.ae/)

9. Ministry of Finance, United Arab Emirates, Double Taxation Agreements: [https://mof.gov.ae/](https://mof.gov.ae/)