Permanent Establishment Risks for UAE Companies Operating in India

Summary: A UAE company may become taxable in India without incorporating an Indian subsidiary or registering a branch where its business activities create a Permanent Establishment (PE). PE exposure may arise through employees, consultants, customer premises, home offices, project sites, agents, warehouses, Indian group companies or other business arrangements. The India–UAE DTAA principally addresses PE under Article 5 and taxation of business profits under Article 7. The analysis requires consideration of fixed-place PE, construction and installation projects, service PE, dependent-agent PE, preparatory or auxiliary activities, independent-agent arrangements and the factual substance of the business. Construction, assembly, installation and supervisory activities and services may be subject to treaty duration thresholds, while connected projects and rotating personnel require enterprise-level consideration. A UAE company may remain a UAE tax resident while having an Indian PE, and PE should be distinguished from corporate residence and the Place of Effective Management (POEM). The existence of a PE does not automatically make worldwide profits taxable in India; the profits attributable to the Indian PE must be determined through appropriate functional analysis. Transfer pricing, withholding tax, treaty eligibility, Tax Residency Certificates, Form 10F, GST, FEMA, company-law requirements and UAE Corporate Tax consequences may also require consideration. The article discusses practical examples involving consultants, project personnel, sales consultants, distributors, founders and remote workers, identifies common PE-related mistakes, and sets out documents and operational measures that UAE businesses should maintain when conducting business connected with India.

Legal Framework

Domestic Law and the India–UAE DTAA

A UAE company does not need to incorporate a subsidiary or register a branch in India before it can become taxable there.

A taxable presence may arise through employees, consultants, agents, customer premises, project sites or other business arrangements. Under international tax law, this presence is commonly referred to as a Permanent Establishment, or PE.

PE exposure is particularly relevant where a UAE company:

• Serves Indian customers;
• Sends employees or consultants to India;
• Uses an Indian office or shared workspace;
• Works regularly from a customer’s premises;
• Appoints a sales or contracting agent in India;
• Stores or delivers goods from India;
• Undertakes construction or installation work;
• Performs long-term consulting projects;
• Uses an Indian group company to support sales; or
• Allows its founder to manage operations from India.

The existence of a PE can allow India to tax the profits attributable to the Indian business presence. It may also create tax-return, accounting, withholding, transfer-pricing and regulatory obligations.

A UAE trade licence, Tax Residency Certificate or foreign bank account does not, by itself, prevent an Indian PE from arising.

PE analysis should generally be undertaken in two stages.

First, the company must examine whether its activities create an Indian tax connection under India’s domestic income-tax law.

Second, if the company qualifies as a UAE resident entitled to treaty benefits, it should examine whether the India–UAE Double Taxation Avoidance Agreement restricts India’s right to tax the business profits.

Article 5 of the India–UAE DTAA contains the principal PE rules. Article 7 addresses the taxation of business profits.

Broadly, profits of a UAE enterprise are taxable only in the UAE unless it carries on business in India through a PE situated there. Where a PE exists, India may tax the profits attributable to that PE.

The treaty must be read together with:

• Applicable Indian income-tax legislation;
• Amending protocols;
• The Multilateral Instrument;
• Treaty anti-abuse provisions;
• Judicial interpretation; and
• The company’s actual operating facts.

A contract stating that no PE exists cannot override activities that create one.

PE Is Different From Company Residence

Permanent establishment and corporate residence address different tax questions.

Corporate residence considers whether the UAE company itself is resident in India, including through the Place of Effective Management test.

PE considers whether a foreign-resident UAE company has a sufficiently substantial business presence in India to permit India to tax the profits attributable to that presence.

A company may therefore:

• Remain a UAE tax resident but have an Indian PE;
• Be treated as an Indian resident because its POEM is in India;
• Have neither Indian residence nor an Indian PE; or
• Face disputes involving both POEM and PE.

The existence of an Indian PE does not, by itself, establish that the company’s POEM is in India. Similarly, keeping POEM in the UAE does not eliminate PE exposure from Indian operations.

Fixed-Place Permanent Establishment

The basic treaty concept is a fixed place of business through which the enterprise’s business is wholly or partly carried on.

A fixed-place PE generally requires consideration of:

• A place of business;
• A sufficient degree of permanence;
• Availability of that place to the foreign enterprise; and
• Performance of the enterprise’s business through that place.

The treaty lists examples such as:

• Place of management;
• Branch;
• Office;
• Factory;
• Workshop;
• Mine;
• Oil or gas well;
• Quarry; and
• Other place for extracting natural resources.

The list is illustrative. A location not formally described as an office can still create a PE if the underlying conditions are satisfied.

Ownership of Premises Is Not Necessary

A UAE company does not need to own or lease property in India before a fixed-place PE can arise.

A place may be considered available to the company where it has continuing access and uses the location to perform its business.

Depending on the circumstances, potential locations include:

• An Indian customer’s office;
• An office belonging to an Indian group company;
• A project room;
• A shared workspace;
• A warehouse;
• A hotel suite used continuously for business;
• A founder’s Indian residence;
• A distributor’s premises; or
• A facility provided by a service provider.

Occasional access is different from having a place effectively available for conducting business. The frequency, duration, control and commercial use of the premises must be considered together.

Customer Premises

UAE consultants, technology companies, engineers and project managers frequently work from customer premises in India.

Working at a customer’s site does not automatically create a PE. The risk increases where:

• The UAE company’s personnel use the same space regularly;
• Access continues for a substantial period;
• The space is used for core revenue-generating activities;
• The customer expects the team to operate from that location;
• Equipment or records are kept there;
• The UAE company can enter and use the premises as required;
• Employees identify the location as the company’s Indian office; or
• Business is conducted there beyond one isolated assignment.

The absence of a formal lease is not decisive.

The practical question is whether the location has become a stable place through which the UAE company carries on its own business.

Home-Office PE

A founder, director or employee of a UAE company may work from a home in India.

A home office is not automatically a PE. The analysis depends on how and why the premises are used.

Risk may arise where:

• The individual works from India continuously;
• The UAE company expects or requires the person to work from that home;
• Core business functions are carried out there;
• The company contributes to rent or office expenses;
• The home address is used in contracts or business communications;
• Customers or suppliers interact with the person at that location;
• Commercial records or equipment are maintained there; or
• The company has no other practical office for those activities.

A temporary personal stay accompanied by occasional emails is very different from operating the UAE business from an Indian home throughout the year.

The company should also consider whether the same facts create POEM exposure.

Place of Management

Article 5 specifically identifies a place of management as a possible PE.

A UAE company may have a place of management in India where important business functions are regularly directed from an Indian location, even if the company remains a UAE resident overall.

For example, an Indian office may manage the company’s South Asian sales operations while the company’s ultimate strategic management remains in Dubai.

That Indian location could potentially constitute a PE without becoming the company’s global place of effective management.

Branch and Office PE

A formally registered Indian branch is a clear example of an Indian business presence. However, tax exposure is not limited to registered branches.

A de facto office may arise where a UAE company:

• Employs personnel in India;
• Maintains a regular business address;
• Receives customers;
• Conducts sales or services;
• Uses company signage;
• Keeps records or equipment; or
• Represents publicly that it operates from the location.

Failing to register a branch does not prevent PE treatment. It may instead create additional company-law, FEMA or regulatory issues.

Construction and Installation Projects

Under Article 5 of the India–UAE DTAA, a building site, construction project, assembly project, installation project or related supervisory activity may constitute a PE where it continues for more than nine months.

This rule may affect UAE companies undertaking:

• Factory installation;
• Equipment assembly;
• Industrial fit-out;
• Infrastructure projects;
• Engineering work;
• Plant commissioning;
• Mechanical installation;
• Electrical installation;
• Site supervision; or
• Construction management in India.

The period should be tracked from the time the enterprise begins relevant on-site activity, including appropriate preparatory work, until the project is completed or permanently abandoned.

Temporary interruptions may not necessarily stop the duration count.

Splitting a Project Does Not Necessarily Avoid PE

A company should not assume that dividing one commercial project into shorter contracts will prevent the nine-month threshold from being crossed.

Authorities may examine whether apparently separate contracts are:

• Commercially connected;
• Performed for the same customer;
• Undertaken at the same or connected sites;
• Part of one negotiated arrangement;
• Sequential stages of one project;
• Awarded to related companies; or
• Divided mainly to avoid the treaty threshold.

The Multilateral Instrument and treaty anti-abuse provisions may also affect arrangements designed to fragment activities artificially.

The legal form of each contract should be considered alongside the economic reality of the complete project.

Service Permanent Establishment

The India–UAE treaty contains a specific service-PE provision.

A PE may arise where a UAE enterprise furnishes services in India, including consultancy services, through employees or other personnel and the activities continue for the same or a connected project for more than nine months within any 12-month period.

This provision can apply to:

• Management consultants;
• Engineering firms;
• IT implementation companies;
• Technical-support providers;
• Project managers;
• Professional advisory firms;
• Commissioning specialists;
• Training providers;
• Software consultants; and
• Other service businesses.

The service-PE rule is especially important because the UAE company may create a PE without maintaining a traditional office.

How the Service Duration Should Be Monitored

The treaty threshold refers to activities continuing for the same project or connected projects.

The company should maintain detailed records of:

• Employee entry and exit dates;
• Consultant travel;
• Workdays in India;
• Project locations;
• Customer contracts;
• Extensions and change orders;
• Connected assignments;
• Remote and on-site functions;
• Personnel replacements; and
• Periods of interruption.

Changing the employees assigned to the project does not necessarily restart the threshold. The relevant inquiry concerns the enterprise’s service activities, not only the presence of one named employee.

Similarly, replacing one contract with another may not reset the period if the assignments remain commercially connected.

Connected Projects

Whether projects are connected depends on their commercial and factual relationship.

Relevant considerations may include:

• Whether contracts were negotiated together;
• Whether the same customer or related customers are involved;
• Whether one project depends on another;
• Whether the services are substantially similar;
• Whether the same team performs the work;
• Whether projects take place at the same location;
• Whether there is one overall commercial objective; and
• Whether the assignments form different phases of one engagement.

A company should not treat every invoice or purchase order as a separate project without considering the wider arrangement.

Remote Services From the UAE

Services performed entirely from the UAE do not ordinarily create an Indian service PE merely because the customer is located in India.

The analysis may change where:

• Personnel perform part of the services in India;
• The UAE company uses Indian subcontractors under its control;
• Employees work remotely while physically present in India;
• An Indian location is available to the company;
• An Indian agent concludes contracts; or
• Services are linked to an existing Indian PE.

A consultant’s physical location matters. An employee who logs into the Dubai company’s systems while residing and working in India is performing services from India, even if the company’s server and bank account remain in the UAE.

Employee Secondments

Seconding employees from a UAE company to an Indian customer or related company can create PE exposure.

The analysis may examine:

• Who directs and supervises the employees;
• Who controls their work;
• Who bears salary costs;
• Whether the Indian entity is the economic employer;
• Whether the employees continue representing the UAE company;
• Whether the UAE company assumes project risk;
• Whether personnel perform core services of the UAE company;
• Duration of the assignment; and
• Whether the UAE enterprise has access to the Indian workplace.

A secondment agreement cannot override the actual working relationship.

If the Indian entity exercises complete control and the UAE company merely recovers employment costs, the analysis may differ from a case where the UAE enterprise continues delivering its own services through seconded personnel.

Use of Independent Contractors

Calling personnel “independent contractors” does not automatically prevent a service PE.

The treaty refers to employees or other personnel through whom the enterprise furnishes services. Authorities may examine whether contractors:

• Work under the UAE company’s direction;
• Are integrated into its project team;
• Represent the company before the customer;
• Use the company’s methods and systems;
• Perform the company’s contractual obligations; or
• Operate independently in their own business.

A UAE company should not assume that replacing employees with individual consultants eliminates the relevant presence.

Dependent-Agent Permanent Establishment

A PE can also arise where a person in India acts on behalf of the UAE company and satisfies the applicable dependent-agent conditions.

Under the India–UAE treaty framework, risk may arise where a person in India habitually:

• Exercises authority to conclude contracts on behalf of the UAE company;
• Maintains stock from which goods are regularly delivered for the company; or
• Secures orders mainly or wholly for the UAE company or related enterprises, subject to the exact treaty conditions.

The complete treaty text, protocols and applicable MLI modifications must be reviewed for the relevant period.

The agent does not necessarily need to be an employee. The person may be:

• Individual sales representative;
• Indian subsidiary;
• Related company;
• Consultant;
• Commission agent;
• Distributor acting beyond an ordinary distributor role; or
• Founder residing in India.

Contract Signature Outside India Is Not Always Sufficient

A UAE company may require every customer contract to be signed electronically by a director in Dubai.

That procedure does not necessarily eliminate agency risk if the Indian representative:

• Identifies the customer;
• Negotiates all material terms;
• Finalises pricing;
• Commits delivery schedules;
• Resolves contractual objections; and
• Leaves the Dubai signatory with no meaningful commercial decision.

The location of the final signature is relevant but not always decisive. The actual contracting process must be examined.

A Dubai director should not be used merely as a formal signatory for business already secured and finalised in India.

Sales and Marketing Activities

Indian marketing activity does not automatically create a PE.

Risk depends on the representative’s authority, conduct and contribution to contract formation.

Lower-risk activities may include:

• General advertising;
• Market research;
• Identifying potential customers;
• Arranging introductory meetings;
• Providing non-binding product information; or
• Forwarding leads to the UAE office.

Higher-risk activities may include:

• Negotiating essential terms;
• Agreeing prices or discounts;
• Committing delivery dates;
• Handling objections until the customer is ready to sign;
• Regularly securing orders accepted without substantive review; or
• Representing that the Indian person can commit the UAE company.

Job titles are not conclusive. A “marketing consultant” may, in practice, function as the company’s Indian sales office.

Independent-Agent Exception

A UAE company may not have a dependent-agent PE where it conducts business through a broker, general commission agent or another genuinely independent agent acting in the ordinary course of that agent’s business.

Independence is a factual question.

Relevant factors include whether the agent:

• Acts for multiple unrelated principals;
• Bears entrepreneurial risk;
• Controls its own working methods;
• Has financial independence;
• Is not subject to detailed control;
• Possesses its own organisation;
• Receives market-based remuneration; and
• Does not work almost exclusively for the UAE company and its related enterprises.

An agreement describing the representative as independent will carry limited weight if the commercial relationship demonstrates dependence.

Indian Subsidiary

A UAE company does not automatically have an Indian PE merely because it owns an Indian subsidiary.

A subsidiary is ordinarily a separate legal and taxable person.

PE risk can still arise where the Indian subsidiary:

• Acts as a dependent agent;
• Habitually binds the UAE company;
• Provides premises at the UAE company’s disposal;
• Performs the UAE company’s contractual obligations;
• Houses UAE personnel;
• Maintains inventory for the UAE company;
• Operates without genuine independence; or
• Functions as the foreign company’s Indian office.

Group ownership should not be confused with PE, but group arrangements must reflect the parties’ actual functions.

Distributor Arrangements

A normal buy-sell distributor generally purchases products on its own account and resells them to customers. Its business is distinct from that of the foreign supplier.

PE risk increases where the purported distributor:

• Does not take title to goods;
• Bears little or no inventory risk;
• Cannot set resale prices;
• Acts mainly as an order-collection agent;
• Uses the UAE company’s inventory;
• Regularly commits the UAE company to customers;
• Works almost exclusively under detailed instructions; or
• Is remunerated more like an agent than an independent distributor.

The agreement, invoicing chain, inventory ownership and actual conduct should all support the intended model.

Warehousing and Inventory

The India–UAE treaty contains exclusions for certain activities such as maintaining facilities or stock solely for storage, display or delivery.

These exclusions should not be applied mechanically.

The company should examine:

• Who owns the inventory;
• Whether customer orders are processed from the warehouse;
• Whether sales personnel operate there;
• Whether goods are customised or assembled;
• Whether the facility performs quality control;
• Whether delivery is a core part of the business;
• Whether multiple related activities are combined; and
• Whether the activity remains genuinely preparatory or auxiliary.

A warehouse that functions as an essential fulfilment centre may require closer analysis than a location used only for passive storage.

Preparatory and Auxiliary Activities

Certain fixed-place activities may be excluded from PE treatment where they are genuinely preparatory or auxiliary.

Examples in the treaty may include facilities maintained solely for:

• Storage;
• Display;
• Delivery;
• Processing by another enterprise;
• Purchasing goods;
• Collecting information; or
• Another preparatory or auxiliary activity.

The word “solely” is important. A location conducting sales, contract negotiation, service delivery or core fulfilment functions may not qualify merely because it also stores goods or collects information.

An activity is generally preparatory where it precedes the main business. It is auxiliary where it supports the business without forming a substantial part of the enterprise’s essential operations.

The assessment depends on the company’s business model. Delivery may be auxiliary for one enterprise and central to another.

Fragmentation of Activities

Related activities should not be divided among separate companies or locations merely to bring each one within a PE exception.

For example, one Indian group company may perform marketing, another may store goods and a third may manage deliveries. Viewed separately, each entity may claim to perform only a limited function. Viewed together, they may form a cohesive business operation.

The MLI and anti-fragmentation principles may restrict the use of preparatory or auxiliary exceptions where complementary functions form part of an overall business.

The complete arrangement should be analysed, not only each contract in isolation.

E-Commerce and Digital Businesses

A UAE company can sell to Indian customers through a website without necessarily creating an Indian fixed-place PE.

A website is intangible and is not itself a physical place of business. However, the position may change where the company has:

• A server at its disposal in India;
• Indian employees performing core functions;
• An Indian fulfilment centre;
• Locally controlled inventory;
• Indian personnel concluding or securing contracts;
• Customer-support operations central to the business;
• Installation teams; or
• An Indian group company performing essential functions.

Separate Indian equalisation, withholding, GST or significant-economic-presence rules may also require consideration even if no treaty PE exists.

Absence of a PE does not automatically mean absence of every Indian tax obligation.

Significant Economic Presence

Indian domestic law contains the concept of significant economic presence as a form of business connection for certain non-residents.

The rules may consider prescribed transaction or user-based thresholds. However, where an eligible UAE enterprise receives protection under the India–UAE DTAA, India’s ability to tax business profits may still depend on whether a PE exists under the treaty.

The taxpayer must establish treaty eligibility. Relevant documents may include:

• UAE Tax Residency Certificate;
• Form 10F or its applicable successor;
• Beneficial-ownership information;
• Corporate documents;
• Evidence of UAE management;
• Commercial-substance records; and
• Consistency with anti-abuse requirements.

A domestic business connection and a treaty PE are related but not identical tests.

Supervisory Activities

Supervision connected with a construction, assembly or installation project can fall within the treaty’s project-PE provision.

A UAE company should not count only the days spent performing physical installation. Time spent by engineers, supervisors, safety personnel and project managers may also be relevant where their activities are connected with the project.

Project records should identify:

• Site mobilisation;
• Supervisory visits;
• Testing;
• Commissioning;
• Handover;
• Rectification work;
• Temporary shutdowns; and
• Work performed by subcontractors.

The complete commercial project period should be examined.

Subcontractors

A UAE company may outsource Indian work to subcontractors.

Using a subcontractor does not automatically remove PE exposure. Relevant questions include:

• Whether the subcontractor operates independently;
• Whether the UAE company controls its activities;
• Whether the site remains available to the UAE enterprise;
• Whether subcontractor time counts toward the project duration;
• Whether UAE personnel supervise the work;
• Whether the subcontractor performs the UAE company’s core obligation; and
• Whether multiple subcontractors form part of one project.

The answer depends on the treaty, contractual structure and level of control.

Short Business Visits

Occasional visits by UAE directors or employees do not necessarily create a PE.

Nevertheless, companies should record:

• Purpose of each visit;
• Location of meetings;
• Activities performed;
• Contracts discussed;
• Authority exercised;
• Days spent in India;
• Projects involved; and
• Whether visits form a regular pattern.

A series of supposedly short visits by rotating employees can collectively establish a sustained Indian operation.

Replacing one traveller with another does not necessarily change the enterprise-level analysis.

Trade Fairs and Exhibitions

Participation in an Indian trade fair is less likely to create a PE where the activity is temporary and limited to product display or general promotion.

Risk increases if company representatives:

• Negotiate and finalise contracts;
• Accept orders;
• Maintain stock for regular delivery;
• Return repeatedly for extended periods;
• Use the venue as a continuing sales location; or
• Combine the exhibition with broader Indian business operations.

Temporary promotional activity should be kept distinct from regular sales and fulfilment.

Repairs, Warranty and After-Sales Support

UAE companies selling machinery, software or technical equipment to India may send personnel to provide installation, repair, warranty or support services.

These activities can contribute to:

• Fixed-place PE;
• Service PE;
• Installation PE;
• Project duration;
• Profit attribution; and
• Indian withholding obligations.

The company should not treat after-sales work as irrelevant merely because no separate fee is charged. The service may be commercially embedded in the product price.

Remote Work by Employees Temporarily in India

Employees of a UAE company may travel to India for personal reasons and continue working remotely.

PE risk will depend on:

• Duration of the stay;
• Nature of the employee’s role;
• Authority to make decisions;
• Whether the company approved the arrangement;
• Whether the employee serves Indian customers;
• Whether the home is available to the company;
• Whether the arrangement becomes habitual; and
• Whether the employee concludes or negotiates contracts.

A short emergency stay by a junior employee is different from a senior sales director managing regional customers from India for most of the year.

Companies should maintain an international remote-work policy that addresses tax presence.

Founder Remaining in India

One of the highest-risk situations arises when an Indian founder establishes a UAE company but continues operating it from India.

The founder may:

• Identify and negotiate with customers;
• Provide services;
• Control bank accounts;
• Hire contractors;
• Approve prices;
• Sign or finalise contracts;
• Use an Indian home office; and
• Represent the UAE company before customers.

These facts may create an Indian PE and could also raise POEM concerns.

A UAE residence visa or occasional visit to Dubai will not neutralise a sustained Indian operation.

Business Profits and Article 7

Where no Indian PE exists, Article 7 generally restricts India from taxing the UAE enterprise’s business profits, subject to the treaty and applicable characterisation rules.

Where a PE exists, India may tax the profits attributable to it.

The first question is therefore whether a PE exists. The second is how much profit should be attributed to it.

The existence of a PE does not automatically make the company’s entire worldwide profit taxable in India.

Profit Attribution

Profit attribution generally requires a functional analysis of the Indian PE.

The analysis should examine:

• Functions performed;
• Assets used;
• Risks controlled;
• Employees involved;
• Customer relationships;
• Contracts;
• Revenue generated;
• Intellectual property;
• Inventory;
• Direct expenses;
• Shared costs; and
• Dealings with the UAE head office.

The objective is to determine the profit that the Indian presence would have earned based on its economically significant activities.

A company with weak segmental records may find it difficult to rebut an excessive attribution.

Transfer Pricing and PE Attribution

PE attribution and transfer pricing are closely connected but not identical.

Where an Indian subsidiary or service provider receives arm’s-length remuneration, that fact is relevant. It does not automatically eliminate PE exposure or prove that no additional profit is attributable.

The analysis may ask:

• Whether all Indian functions have been compensated;
• Whether the PE uses valuable intangible assets;
• Whether Indian personnel control important risks;
• Whether sales activity creates customer relationships;
• Whether the Indian entity performs more than its agreement states; and
• Whether the UAE company retains meaningful functions outside India.

Contracts, transfer-pricing reports and actual conduct should tell the same commercial story.

Expenses Attributable to the PE

A PE may generally claim appropriate expenses incurred for its business, subject to Indian law and the treaty.

Potential expenses may include:

• Employee costs;
• Rent;
• Travel;
• Project expenditure;
• Depreciation;
• Professional fees;
• Allocated head-office costs; and
• Other expenses connected with the PE’s operations.

The company should maintain a reasonable allocation method supported by documents.

Unsupported management charges or arbitrary head-office allocations may be challenged.

Withholding Tax

Indian customers often deduct tax from payments to foreign companies where they believe the income is taxable in India.

The withholding position may depend on:

• Nature of the payment;
• Domestic income-tax law;
• Treaty characterisation;
• Existence of a PE;
• Connection between the payment and the PE;
• Applicable certificate or order;
• Availability of a TRC; and
• Prescribed forms.

A UAE company should not determine PE only after tax has been deducted. The issue should be analysed while negotiating the contract.

Where the company believes that only part of the payment is taxable, an appropriate withholding application or certificate may need to be considered.

Business Income, Royalty or Other Income

A payment does not necessarily fall under Article 7 merely because the agreement calls it a service fee.

Payments involving software, intellectual property, equipment, technical information or licensed rights may require analysis under other treaty articles.

The company should determine whether the consideration represents:

• Business profits;
• Royalty;
• Interest;
• Capital gain;
• Independent professional income;
• Employment income; or
• Another treaty category.

PE analysis remains important because several treaty articles provide different treatment where the relevant right, asset or activity is effectively connected with an Indian PE.

Indian Compliance After a PE Arises

A UAE company with an Indian PE may need to address:

• PAN registration;
• Indian income-tax return;
• Tax computation;
• Advance tax;
• Books and records;
• Tax audit;
• Transfer-pricing documentation;
• Withholding tax;
• GST;
• Permanent-accounting records;
• Employee payroll obligations;
• FEMA;
• company-law registration;
• Foreign tax credit in the UAE; and
• Repatriation of profits.

Tax registration does not substitute for branch or regulatory registration. Different laws may impose separate requirements.

UAE Corporate Tax Interaction

A UAE-resident company remains subject to UAE Corporate Tax rules even where it has an Indian PE.

The company may need to report the Indian PE income in the UAE and determine whether double-taxation relief or an exemption mechanism applies under UAE law.

The accounting records should reconcile:

• Indian PE revenue;
• Attributed expenses;
• Indian taxable profit;
• Indian tax paid;
• UAE taxable income;
• Foreign tax credit; and
• Currency conversion.

A mismatch between the Indian attribution and UAE return can lead to credit limitations or compliance questions.

Tax Residency Certificate and Form 10F

A UAE company claiming India–UAE treaty benefits should ordinarily maintain a valid UAE Tax Residency Certificate for the relevant period.

Where the TRC does not contain all prescribed particulars, Form 10F or the corresponding form under the applicable rules may also be required.

These documents support treaty eligibility but do not prove the absence of an Indian PE.

Authorities may still examine:

• Indian employees;
• Office access;
• Agents;
• Project duration;
• Contracts;
• Inventory;
• Service activities;
• Management functions; and
• Anti-abuse provisions.

Treaty paperwork and operational evidence must be consistent.

Practical Examples

Practical Example: UAE Consultant Working at an Indian Client Site

A Dubai consulting company sends three employees to India for an implementation assignment.

The employees work from the client’s office and remain there for ten months. They provide the core services promised under the UAE company’s contract.

The arrangement may create a service PE because the service period exceeds the treaty threshold. A fixed-place PE may also require consideration if the client’s premises are effectively available to the team.

The company should then determine the profit attributable to the Indian activities rather than assuming that only employee salaries are taxable.

Practical Example: Rotating Project Personnel

A UAE engineering company assigns different employees to one Indian installation project. No individual remains in India for more than three months, but the project continues for eleven months.

The company cannot necessarily test the threshold employee by employee. The relevant project and enterprise-level activities must be considered.

Rotating personnel may still result in a project or service PE.

Practical Example: Indian Sales Consultant

A UAE software company appoints an Indian consultant who works exclusively for it.

The consultant identifies customers, demonstrates the product, negotiates pricing and sends completed order forms to Dubai. The Dubai director normally signs them without changes.

The arrangement creates a significant agency-PE concern. Calling the consultant independent and signing the contract in Dubai may not be sufficient if the consultant substantively secures the company’s Indian business.

Practical Example: Independent Indian Distributor

A UAE manufacturer sells products to an independent Indian distributor.

The distributor buys and owns the goods, determines its resale strategy, maintains its own customers, bears inventory and credit risk, and distributes products from its own premises.

These facts are more consistent with an independent buy-sell relationship. The distributor’s premises would not ordinarily become the UAE company’s PE merely because it sells the UAE company’s products.

The conclusion may change if the actual conduct differs from the agreement.

Practical Example: Founder Operating From an Indian Home

An Indian founder incorporates a Dubai free-zone company and obtains a UAE bank account. The founder continues living in India, provides all services from an Indian home, negotiates contracts and operates the UAE company’s bank account.

The home may become a fixed place through which the UAE business is carried on. The founder’s contracting activities may also create agency exposure.

In addition, the facts may indicate that the company’s place of effective management is in India.

The structure should be reviewed as a complete Indian tax-residence and PE matter.

Practical Example: Occasional Marketing Visits

A UAE company’s sales director visits India four times during the year for short introductory meetings. All negotiations, pricing decisions and contract approvals take place in Dubai, and the company has no Indian office, inventory or representative.

On those facts alone, PE risk may be lower.

The company should still preserve travel records, meeting agendas and contract-approval evidence to demonstrate the limited nature of the Indian activities.

PE Risk-Assessment Questions

Before entering the Indian market, a UAE company should ask:

1. Will the company have access to any fixed location in India?

2. Will employees work from customer or group-company premises?

3. Will anyone work regularly from an Indian home?

4. How many months will each project continue?

5. Are separate contracts commercially connected?

6. Will employees or contractors furnish services in India?

7. Who negotiates customer contracts?

8. Who approves pricing and discounts?

9. Can any Indian person bind the UAE company?

10. Does an Indian person habitually secure orders?

11. Will goods be stored or delivered from India?

12. Who owns Indian inventory?

13. Does the Indian distributor bear genuine commercial risk?

14. Are activities genuinely preparatory or auxiliary?

15. Could related activities be viewed together?

16. Will employees be seconded to an Indian entity?

17. Does the UAE company have an Indian subsidiary?

18. Are all Indian functions priced at arm’s length?

19. Does the company qualify for India–UAE treaty benefits?

20. How will PE profits and expenses be identified?

Documents to Maintain

A UAE company conducting business connected with India should maintain:

• India–UAE Tax Residency Certificate;
• Form 10F or applicable prescribed form;
• Customer contracts;
• Project schedules;
• Employee travel records;
• Immigration reports;
• Timesheets;
• Work-location records;
• Subcontractor agreements;
• Secondment agreements;
• Agent and distributor contracts;
• Contract-approval records;
• Pricing correspondence;
• Inventory records;
• Warehouse agreements;
• Office-access arrangements;
• Board resolutions;
• Organisational charts;
• Transfer-pricing reports;
• Segmental accounts;
• Expense allocations;
• Withholding certificates;
• Indian tax filings; and
• UAE Corporate Tax records.

Documentation should be created during operations, not reconstructed after an assessment begins.

Common Mistakes

UAE companies frequently increase PE risk by:

• Believing that no Indian subsidiary means no Indian tax;
• Treating a UAE licence as protection from Indian taxation;
• Ignoring employees working from India;
• Counting service days separately for each employee;
• Dividing one project into several short contracts;
• Allowing personnel to use customer premises indefinitely;
• Signing contracts in Dubai after all terms are finalised in India;
• Calling a dependent sales representative an independent consultant;
• Assuming every warehouse activity is auxiliary;
• Ignoring stock maintained for Indian delivery;
• Treating seconded personnel as automatically transferred to the Indian employer;
• Using subcontractors without analysing control;
• Failing to maintain travel and project records;
• Confusing POEM with PE;
• Assuming arm’s-length payment to an Indian subsidiary removes every PE issue;
• Claiming treaty protection without a valid TRC;
• Ignoring GST and withholding tax;
• Maintaining no segmental accounts; and
• Reviewing PE only after tax has been withheld or a notice has been received.

Managing PE Risk Properly

PE planning should not be used to conceal a real Indian operation. The objective is to identify the correct structure before activities begin.

Practical steps may include:

• Defining the Indian operating model;
• Allocating authority clearly;
• Limiting Indian activities to their documented scope;
• Tracking project and service duration;
• Reviewing connected contracts;
• Establishing genuine distributor independence;
• Controlling access to customer premises;
• Maintaining an international remote-work policy;
• Separating marketing from contract negotiation;
• Documenting substantive contract approval in the UAE;
• Reviewing inventory and delivery arrangements;
• Preparing transfer-pricing documentation;
• Maintaining PE-level accounts where exposure exists; and
• Conducting periodic tax reviews as operations expand.

Commercial reality should always match the legal documentation.

Conclusion

A UAE company can create an Indian Permanent Establishment without incorporating a subsidiary, registering a branch or leasing a conventional office.

Employees, consultants, project sites, customer premises, warehouses, agents and home offices can all become relevant. The India–UAE treaty also contains specific provisions for construction and installation projects, service activities and persons acting on behalf of a foreign enterprise.

The existence of a PE does not necessarily make the UAE company’s entire worldwide profit taxable in India. India generally taxes the profits attributable to the Indian PE. Reliable functional analysis and segmental accounting are therefore essential.

The strongest approach is to examine PE exposure before entering into Indian contracts. Project duration, employee travel, authority, premises, inventory and profit attribution should be considered as part of the commercial design.

A structure supported by real operating facts is far more defensible than a “no PE” clause contradicted by the way the business actually functions.

Disclaimer

This article is intended solely for general educational and informational purposes. It does not constitute legal, tax, treaty, investment or professional advice. Permanent-establishment analysis depends on the applicable law, treaty, protocols, MLI provisions and specific operating facts. Readers should verify the current provisions and obtain professional advice before commencing or restructuring business activities in India.

References

1. India–UAE Double Taxation Avoidance Agreement and synthesised text incorporating the Multilateral Instrument:
https://wmstatic-prd.incometaxindia.gov.in/web/guest/w/uae-synthesised-text-1

2. Income Tax Department, Government of India — International Taxation and Tax Treaties:
https://www.incometaxindia.gov.in/

3. Income-tax Act, 2025 — provisions relating to residence, business connection, income deemed to arise in India, non-residents and transfer pricing:
https://www.incometax.gov.in/

4. Income-tax Act, 1961 — provisions applicable to periods governed by that Act:
https://www.incometaxindia.gov.in/

5. Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting:
https://www.oecd.org/tax/treaties/multilateral-convention-to-implement-tax-treaty-related-measures-to-prevent-BEPS.htm

6. Federal Tax Authority, United Arab Emirates — Corporate Tax legislation and guidance:
https://tax.gov.ae/

7. UAE Ministry of Finance — Double Taxation Agreements:
https://mof.gov.ae/