Starting a Dubai Company: Indian Tax Implications Explained

Summary: Starting a company in Dubai does not, by itself, remove an Indian founder or the business from the Indian tax and regulatory framework. The tax outcome depends on interconnected factors including the founder’s residential status, the residence and place of effective management of the Dubai company, the location where services and commercial activities are actually performed, the source of income, and the movement of funds between India and the UAE. An ordinarily resident founder may generally be taxable in India on worldwide income, while RNOR and non-resident treatment can produce narrower exposure depending on the nature and source of income. A Dubai company managed substantially from India may face Indian corporate-residence exposure through POEM or create a permanent establishment in India under the India–UAE DTAA. Salary, directors’ fees, dividends, interest and management or consultancy fees require separate analysis, while related-party transactions may trigger transfer-pricing requirements. Indian residents establishing or acquiring a Dubai company must also consider FEMA and overseas-investment requirements, including ODI classification, LRS limits, authorised-dealer procedures and reporting. GST implications arise where Indian businesses provide services to the Dubai entity, and transfers of intellectual property from India may create tax, valuation, transfer-pricing and FEMA consequences. Foreign-asset reporting, Black Money Act exposure, treaty relief, foreign-tax credit, capital gains and GAAR must also be considered. The article emphasises that genuine UAE management, commercial substance, appropriate documentation and consistency between legal arrangements and actual conduct are critical. A Dubai structure should therefore be designed before incorporation rather than treated as a mechanism for automatically eliminating Indian taxation.

Introduction

Starting a Dubai company does not, by itself, move the owner or the business outside the Indian tax system.

A Dubai company is a separate legal entity formed under UAE law. Its Indian tax consequences, however, depend on much more than the place mentioned on its trade licence. The owner’s residential status, the place from which the company is managed, the location where services are performed, the source of its income and the movement of money between India and the UAE can all affect the final position.

This distinction is particularly important for Indian founders who establish a Dubai company but continue to live, work or manage commercial activities from India.

A genuine UAE business with local management, operating resources and properly documented transactions may have a very different tax profile from a company that exists in Dubai only on paper while its commercial decisions and revenue-generating work remain in India.

Before incorporating, an Indian founder should examine at least six connected areas:

• Personal tax residence;
• Residence of the Dubai company;
• Place of effective management;
• Permanent-establishment exposure;
• Taxation of salary, dividends and other payments;
• FEMA and overseas-investment compliance;
• Transfer pricing and related-party transactions; and
• Foreign-asset and income-tax reporting.

Dubai Incorporation Does Not Automatically Create Tax Exemption

Dubai is often described as a low-tax business jurisdiction. That description can be misleading when it is treated as a complete tax conclusion.

The UAE has a federal Corporate Tax system. A UAE company may be subject to Corporate Tax based on its taxable income, legal status, business activities and eligibility for any available relief. The standard UAE Corporate Tax rates generally include:

• 0% on taxable income up to AED 375,000; and
• 9% on taxable income exceeding AED 375,000.

A qualifying free-zone person may benefit from a 0% rate on qualifying income, subject to detailed statutory conditions. A free-zone licence alone does not guarantee a 0% Corporate Tax outcome.

The company may also have UAE obligations involving:

• Corporate Tax registration;
• Annual tax returns;
• Transfer pricing;
• Financial records;
• VAT;
• Customs;
• Beneficial-ownership reporting; and
• Sector-specific compliance.

At the same time, the owner and company may have Indian tax obligations. UAE incorporation and Indian taxation are not mutually exclusive.

The Owner’s Residential Status Comes First

The founder’s Indian residential status is one of the first matters to determine.

For income earned from 1 April 2026, residence is governed by Section 6 of the Income-tax Act, 2025. Earlier periods remain subject to the corresponding provisions of the Income-tax Act, 1961.

An individual is generally resident in India during a tax year if the individual:

• Is present in India for at least 182 days during that year; or
• Is present in India for at least 60 days during that year and at least 365 days during the four preceding years.

Special rules apply to Indian citizens leaving India for employment abroad and to Indian citizens or persons of Indian origin visiting India. A modified 120-day rule can apply to certain visiting individuals whose Indian income, excluding income from foreign sources, exceeds ₹15 lakh.

A deemed-residence rule may also apply to certain Indian citizens with income above the specified threshold who are not liable to tax in another country by reason of residence, domicile or a similar criterion.

The person may ultimately be classified as:

• Resident and ordinarily resident;
• Resident but not ordinarily resident; or
• Non-resident.

This classification directly affects how income from the Dubai company is treated in India.

Worldwide Income of an Ordinarily Resident Founder

A resident and ordinarily resident individual is generally taxable in India on worldwide income, subject to applicable exemptions, deductions and treaty relief.

This means that incorporating a company in Dubai does not automatically keep the founder’s UAE income outside Indian taxation.

Amounts that may need to be reported in India include:

• Salary received from the Dubai company;
• Directors’ fees;
• Dividends;
• Interest on shareholder funding;
• Consultancy or management fees;
• Rent or benefits provided by the company;
• Capital gains from selling the UAE company;
• Foreign bank interest; and
• Other income received from the company.

The amount may be taxable even if it is retained in a UAE bank account and never transferred to India. For an ordinarily resident taxpayer, the location of the bank account does not generally prevent foreign income from entering the Indian tax base.

Position of an RNOR Founder

A resident but not ordinarily resident individual has a narrower Indian tax exposure than an ordinarily resident.

An RNOR is generally taxable in India on:

• Income received or deemed to be received in India;
• Income accruing, arising or deemed to accrue or arise in India; and
• Foreign income derived from a business controlled in India or a profession set up in India.

The third category is particularly relevant to Dubai company owners.

A founder may assume that all income of a UAE company is foreign because the entity is incorporated abroad. If the underlying business is controlled from India, that assumption may be unsafe.

The scope of taxation will depend on the precise nature of the income and the relationship between the company’s business and the founder. Nevertheless, RNOR status should not be treated as a blanket exemption for every amount connected with a foreign company.

Position of a Non-Resident Founder

A non-resident individual is generally taxable in India on income:

• Received or deemed to be received in India; or
• Accruing, arising or deemed to accrue or arise in India.

A non-resident founder may therefore remain taxable on:

• Income from services performed in India;
• Rent from Indian property;
• Capital gains from Indian assets;
• Interest from Indian sources;
• Salary attributable to employment exercised in India;
• Fees connected with an Indian business presence; and
• Other income deemed to arise in India.

Moving to Dubai does not eliminate tax on Indian-source income. It changes the scope of taxation rather than removing India from the analysis.

FEMA Residence Is a Separate Question

Income-tax residence and residence under the Foreign Exchange Management Act are not identical.

FEMA considers both physical presence and the purpose of a person’s stay or departure. A person leaving India for employment, business or another purpose indicating an intention to remain abroad for an uncertain period may become a person resident outside India for FEMA purposes.

An individual may therefore be treated differently under the income-tax and FEMA frameworks.

This distinction matters because a person resident in India who forms or acquires a Dubai company must comply with India’s overseas-investment regime.

The investment will ordinarily be governed by:

• FEMA, 1999;
• Foreign Exchange Management (Overseas Investment) Rules, 2022;
• Foreign Exchange Management (Overseas Investment) Regulations, 2022; and
• RBI Foreign Exchange Management (Overseas Investment) Directions, 2022.

FEMA permission does not determine taxability, and paying Indian tax does not cure a FEMA violation.

Investment in a Private Dubai Company Is Usually ODI

Most Dubai mainland and free-zone companies are privately held and unlisted.

An Indian resident’s investment in the equity capital of an unlisted foreign entity is generally classified as Overseas Direct Investment. Investment in a listed entity may also become ODI where the investor acquires at least 10% of its paid-up equity capital or obtains control.

A resident individual can generally establish a wholly owned Dubai company, subject to the applicable conditions.

Important requirements may include:

• Investment in an eligible foreign entity;
• A bona fide business activity;
• Compliance with the Liberalised Remittance Scheme limit;
• Use of an authorised dealer bank;
• Submission of Form FC;
• Obtaining a Unique Identification Number;
• Compliance with pricing rules;
• Submission of evidence of investment; and
• Annual Performance Report filing where applicable.

An individual should not pay an overseas incorporation agent first and ask an Indian bank to reconstruct the ODI transaction later.

Liberalised Remittance Scheme

A resident individual’s overseas investment is generally counted within the Liberalised Remittance Scheme limit.

The LRS limit is ordinarily USD 250,000 per Indian financial year for permitted current-account and capital-account transactions.

It is an overall limit, not a separate allowance for each company or purpose. Previous remittances for foreign investments, property, education or other covered purposes may reduce the amount available for the Dubai company.

Tax collection at source may separately apply to an LRS remittance under the prevailing income-tax provisions. TCS is a collection mechanism and does not represent the final tax liability. It also does not make an otherwise prohibited overseas investment permissible.

Residence of the Dubai Company

A company incorporated in Dubai is ordinarily regarded as a juridical person established under UAE law. However, Indian law contains a separate test for determining whether a foreign company is resident in India.

Under Section 6 of the Income-tax Act, 2025, a company is resident in India if:

• It is an Indian company; or
• Its place of effective management is in India during the tax year.

The place of effective management is the place where key management and commercial decisions necessary for conducting the company’s business as a whole are, in substance, made.

A Dubai certificate of incorporation does not override this test.

How POEM Risk Can Arise

Place-of-effective-management exposure can arise where a Dubai company is formally incorporated in the UAE but substantively managed from India.

Warning signs may include:

• The founder lives and works mainly in India;
• All major decisions are taken from an Indian home or office;
• UAE directors merely sign documents prepared in India;
• Internet banking is controlled entirely from India;
• Contracts are negotiated and approved in India;
• Pricing decisions are made in India;
• The UAE company has no meaningful employees;
• The company uses only a virtual or shared address;
• Accounting and administration are performed from India;
• Board meetings in Dubai merely approve decisions already made elsewhere; and
• Business risks are controlled by the Indian founder.

No single factor is necessarily conclusive. The overall pattern of decision-making is important.

A company does not avoid POEM simply by holding a few board meetings in Dubai. Authorities may examine where decisions were actually formulated, evaluated and implemented.

Consequences If POEM Is in India

If a Dubai company is treated as an Indian tax resident because its POEM is in India, India may tax the company on its worldwide income, subject to the applicable law and treaty position.

This can produce significant consequences involving:

• Indian corporate tax;
• Income-tax return filing;
• Computation of worldwide income;
• Credit for eligible UAE tax;
• Treatment of depreciation and losses;
• Withholding obligations;
• Books and records;
• Transfer pricing;
• Advance tax;
• Interest and penalties; and
• Interaction with the company’s UAE tax obligations.

A company may then face compliance in both jurisdictions. The India–UAE DTAA may become relevant, but the treaty should not be treated as an automatic solution to inadequate management substance.

Treaty Residence of a UAE Company

Article 4 of the India–UAE DTAA contains a specific definition of UAE residence for companies.

The treaty generally refers to a company incorporated in the UAE and managed and controlled wholly in the UAE.

Where a person other than an individual is treated as resident in both countries, the treaty text refers to the place of effective management in resolving residence.

The exact treaty position must be considered together with the Multilateral Instrument, applicable protocols, domestic law and the facts of the company’s management.

A company managed substantially from India may face difficulty demonstrating that it is managed and controlled wholly in the UAE for treaty purposes.

Building Genuine UAE Management Substance

Commercial substance should reflect the real operating model rather than a collection of documents created after the year has ended.

Depending on the size and nature of the business, relevant evidence may include:

• UAE-based directors or senior managers with genuine authority;
• Properly constituted board meetings in the UAE;
• UAE premises appropriate to the activity;
• Local employees or operational service providers;
• UAE accounting records;
• Local operating expenditure;
• Independent control over bank accounts;
• Contracts evaluated and approved in the UAE;
• Business correspondence;
• Evidence of risk management;
• UAE telephone, utility and administrative records; and
• Documents showing where commercial decisions were made.

A small consulting business will not require the same infrastructure as a manufacturing group. Substance should be proportionate, but it must still be real.

Permanent Establishment in India

Even if the Dubai company is not an Indian tax resident, it may create a permanent establishment in India.

Article 5 of the India–UAE DTAA generally recognises a permanent establishment as a fixed place of business through which an enterprise’s business is wholly or partly carried on.

Depending on the facts, a PE may arise through:

• A place of management;
• Branch;
• Office;
• Fixed place available to the UAE company;
• Construction or installation project crossing the treaty threshold;
• Services furnished in India for the prescribed period; or
• A dependent agent acting for the company.

The India–UAE treaty provides a service-PE rule for furnishing services, including consultancy services, where activities for the same or a connected project continue for more than nine months within a 12-month period.

A PE may also arise before that threshold under another part of Article 5, such as a fixed-place or dependent-agent provision.

Working From Home in India

A founder who operates a Dubai company from an Indian residence can create a difficult PE question.

A home office is not automatically a PE. The analysis may consider:

• Whether the premises are regularly used for the company’s business;
• Whether they are effectively available to the company;
• Whether core revenue-generating work is performed there;
• Whether the address appears in contracts or communications;
• Whether customers or staff interact with the founder there;
• Whether the company bears office expenses;
• Whether the arrangement has permanence; and
• Whether the founder conducts the company’s management from that location.

A brief personal visit to India accompanied by occasional emails is very different from running the Dubai company continuously from an Indian home.

Dependent-Agent Exposure

A Dubai company may also create an Indian PE through a person acting on its behalf.

Relevant questions include whether a person in India:

• Habitually concludes contracts;
• Regularly exercises authority to bind the UAE company;
• Plays the principal role leading to contracts routinely approved without material change;
• Maintains stock for delivery on behalf of the company;
• Negotiates essential commercial terms; or
• Works exclusively or almost exclusively for closely related foreign enterprises.

The agreement should match the actual conduct. Describing an Indian person as an “independent consultant” will not settle the issue if that person functions as the Dubai company’s dependent sales or management representative.

Taxation of Profits Attributable to an Indian PE

If the Dubai company has an Indian PE, India may tax the profits attributable to it.

This does not necessarily mean that the company’s entire global profit becomes taxable in India. Profit attribution requires an examination of:

• Functions performed in India;
• Assets used;
• Risks assumed;
• Employees and agents involved;
• Revenue generated;
• Customer relationships;
• Direct expenses;
• Shared costs; and
• Dealings between the PE and the foreign head office.

Reliable segmental accounts are essential. Where the company cannot distinguish its Indian activities from its UAE operations, the attribution exercise can become contentious.

Salary Paid to the Founder

A founder may receive salary from the Dubai company while remaining resident in India or while travelling frequently between the two countries.

Salary taxation depends on factors such as:

• The founder’s residential status;
• Where employment duties are physically performed;
• Whether remuneration relates to Indian or UAE working days;
• The employer’s residence;
• Whether the salary is borne by an Indian PE;
• The short-stay provisions of the treaty; and
• The place of receipt.

A salary credited to a UAE bank account is not automatically outside Indian tax.

For an ordinarily resident individual, worldwide salary may generally be taxable in India. For a non-resident, remuneration attributable to services performed in India can remain taxable even if the employer and bank account are in Dubai.

Travel calendars and workday records should support any allocation between Indian and UAE duties.

Directors’ Fees

Directors’ fees are addressed separately under the India–UAE DTAA.

Article 16 generally permits directors’ fees received by a resident of one country in the capacity of a board member of a company resident in the other country to be taxed in the country where the company is resident.

This rule should be distinguished from salary for executive work or fees for independent services.

A founder can perform several roles for the same company. Board resolutions, employment agreements and payment descriptions should identify the capacity in which each amount is paid.

Dividends From the Dubai Company

The tax treatment of dividends depends substantially on the shareholder’s Indian residential status.

An ordinarily resident Indian shareholder may generally be taxable in India on dividends received from a Dubai company. UAE tax treatment and eligibility for foreign tax credit should be examined separately.

A non-resident shareholder may have a different Indian position, although receipt in India and any connection with Indian sources still require review.

The founder should maintain:

• Dividend declaration;
• Board or shareholder resolution;
• UAE financial statements;
• Proof of shareholding;
• Bank advice;
• UAE tax documents; and
• Foreign-tax-credit evidence, where relevant.

Personal withdrawals from a company bank account should not be casually described as dividends after the event.

Shareholder Loans and Interest

A founder may fund a Dubai company partly through equity and partly through a shareholder loan.

For an Indian resident, the FEMA permissibility of a loan to the foreign company must be examined independently. Resident individuals do not have the same general financial-commitment permissions as Indian entities.

If a loan is permitted, interest may create tax consequences involving:

• Indian taxation in the hands of the lender;
• UAE deductibility;
• Arm’s-length pricing;
• Transfer pricing;
• Withholding tax;
• Foreign tax credit; and
• Repatriation.

An interest-free or commercially unusual loan between related parties may attract scrutiny. The documentation should explain the amount, term, repayment, currency, interest and business purpose.

Management and Consultancy Fees

An Indian founder or related Indian business may provide services to the Dubai company.

These charges should be supported by:

• Written service agreement;
• Detailed scope of work;
• Invoices;
• Evidence of actual services;
• Working papers or deliverables;
• Time records;
• Allocation keys;
• Benefit received by the UAE company;
• Arm’s-length pricing; and
• Payment evidence.

Artificial management fees used merely to shift profit between India and the UAE can be challenged.

The place where services are performed may also affect Indian income tax, GST, permanent-establishment exposure and UAE Corporate Tax.

Transfer Pricing

Transactions between an Indian business and a related Dubai company may be treated as international transactions under Indian transfer-pricing provisions.

Examples include:

• Sale or purchase of goods;
• Consultancy services;
• Software development;
• Marketing support;
• Management fees;
• Royalties;
• Loans;
• Interest;
• Guarantees;
• Cost sharing;
• Reimbursement;
• Transfer of customers;
• Transfer of intellectual property; and
• Business restructuring.

Prices should reflect the arm’s-length principle. The analysis should consider the functions performed, assets used and risks assumed by each party.

The fact that both businesses are owned by the same founder does not permit arbitrary allocation of revenue or expenses.

Intellectual Property Transferred to Dubai

A founder may develop software, a brand, customer database, design, formula or other intellectual property in India and later place it in a Dubai company.

Such a transfer may create significant Indian tax consequences, including:

• Capital gains;
• Business income;
• Transfer pricing;
• Withholding tax;
• GST;
• Valuation requirements;
• Exit-related taxation;
• FEMA compliance; and
• Questions regarding continuing Indian development functions.

The commercial ownership of intellectual property depends on more than legal registration. Authorities may examine which entity funded development, employed the creators, controlled risks and made strategic decisions.

Moving an invoice or registration certificate to Dubai does not automatically move the economic ownership of the intellectual property.

GST Implications for Services From India

Where an Indian business or professional provides services to a Dubai company, the transaction must be examined under Indian GST law.

A service may qualify as an export only if all statutory conditions are satisfied, including the relevant requirements concerning:

• Location of supplier;
• Location of recipient;
• Place of supply;
• Receipt of consideration;
• Distinct-establishment conditions; and
• Applicable foreign-exchange rules.

The Dubai address on an invoice is not conclusive.

If the supplier and recipient are merely establishments of the same person, or if the Indian party acts as an intermediary, export treatment may be affected.

The substance of the transaction should be reviewed before issuing a zero-rated export invoice or filing a refund claim.

India–UAE Treaty Relief

The India–UAE DTAA helps allocate taxing rights and provides relief where the same income is taxed in both countries.

Its relevant provisions may include:

• Article 4 — Residence;
• Article 5 — Permanent establishment;
• Article 7 — Business profits;
• Article 10 — Dividends;
• Article 11 — Interest;
• Article 12 — Royalties;
• Article 13 — Capital gains;
• Article 14 — Independent personal services;
• Article 15 — Employment income;
• Article 16 — Directors’ fees; and
• Article 25 — Elimination of double taxation.

Treaty relief is not automatic. The taxpayer may need:

• UAE Tax Residency Certificate;
• Form 10F;
• Beneficial-ownership evidence;
• Proof of income;
• UAE tax-payment evidence;
• Treaty-position analysis; and
• Documents establishing the absence or presence of a PE.

The Multilateral Instrument and treaty anti-abuse provisions must also be considered. A structure created mainly to obtain treaty benefits without genuine commercial reasons may not receive the expected protection.

Foreign Tax Credit

Where an Indian resident pays eligible tax in the UAE on income also taxed in India, foreign tax credit may be available subject to Indian law and the treaty.

The credit is generally restricted to the lower of:

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

A credit does not usually convert excess UAE tax into an Indian refund.

The taxpayer should maintain:

• UAE Corporate Tax return;
• Tax assessment or confirmation;
• Proof of payment;
• Withholding certificate;
• Income reconciliation;
• Currency conversion;
• Country-wise computation; and
• Indian return disclosures.

The applicable procedure and filing requirements should be checked for the relevant tax year.

Foreign-Asset Disclosure

A resident and ordinarily resident individual may be required to disclose ownership of the Dubai company and other UAE assets in the Indian income-tax return.

Depending on the applicable return and circumstances, disclosures may include:

• Shares in the UAE company;
• Beneficial ownership;
• UAE bank accounts;
• Signing authority;
• Foreign custodial accounts;
• Foreign immovable property;
• Overseas income;
• Loans to the foreign company; and
• Other financial interests.

The reporting obligation can exist even when:

• The UAE company has not earned profit;
• No dividend has been declared;
• The shares were acquired many years earlier;
• No funds were remitted during the year; or
• The company is dormant.

Foreign-asset disclosure is separate from including taxable income in the return.

Black Money Act Exposure

Foreign assets and income may also fall within the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Failure to properly report a Dubai company, foreign bank account or related income can result in serious consequences where the legislation applies.

The taxpayer should not assume that a small UAE company or inactive bank account is irrelevant. Historical ownership, beneficial interest, signing authority and account balances should be reviewed carefully.

A person discovering an omission should obtain advice before filing a revised, updated or corrective disclosure because the appropriate remedy depends on the year, return status and nature of the asset.

Capital Gains on Sale of the Dubai Company

An Indian resident selling shares in a Dubai company may be taxable in India on the resulting capital gain because ordinarily resident individuals are generally taxed on worldwide income.

The calculation may require consideration of:

• Acquisition cost;
• Date and mode of acquisition;
• Sale consideration;
• Fair market value;
• Foreign-currency conversion;
• Related-party pricing;
• UAE taxation;
• Treaty provisions;
• Reinvestment;
• FEMA repatriation; and
• Foreign tax credit.

If the company derives substantial value from assets situated in India, the indirect-transfer provisions may also require examination.

A share sale should be planned before signing. Valuation, withholding and remittance issues are difficult to correct after consideration has been paid.

General Anti-Avoidance Rule

India’s General Anti-Avoidance Rule may apply to an impermissible avoidance arrangement where the statutory conditions are satisfied.

Risk increases where a Dubai structure:

• Lacks commercial substance;
• Uses accommodating or nominal parties;
• Creates rights or obligations not ordinarily found between independent persons;
• Misuses provisions of tax law;
• Shifts profit without corresponding functions; or
• Exists mainly to secure a tax benefit.

A genuine business purpose does not arise merely because the incorporation documents contain broad commercial language. The company’s people, premises, decisions, risks, expenditure and customer relationships should support the stated purpose.

India Does Not Need to Tax the Company Merely Because the Owner Is Indian

It is equally important not to overstate the Indian exposure.

Indian citizenship or share ownership alone does not automatically make a Dubai company resident in India. A foreign company with genuine UAE management and no Indian PE may remain outside Indian corporate residence, subject to the applicable facts and law.

India also does not currently operate a general controlled-foreign-company regime that automatically attributes every undistributed profit of an overseas company to its Indian shareholder merely because the shareholder controls it.

However, the absence of a general CFC regime does not eliminate:

• Tax on salary, fees, dividends or interest;
• POEM;
• Permanent-establishment rules;
• Transfer pricing;
• Deemed accrual;
• GAAR;
• Foreign-asset disclosure; or
• FEMA compliance.

The company’s retained profit should be distinguished from amounts actually received by, credited to or made available for the personal benefit of the shareholder.

Personal Expenses Paid by the Company

Using the Dubai company’s bank account for personal expenditure can create several problems.

Payments for a founder’s personal rent, travel, school fees, vehicles or investments may need to be characterised as:

• Salary;
• Benefit or perquisite;
• Dividend or distribution;
• Director’s remuneration;
• Shareholder loan;
• Reimbursement; or
• Amount recoverable by the company.

The tax treatment depends on the underlying facts and applicable law. Personal withdrawals should not be left indefinitely in a suspense account.

Clear policies, expense claims, shareholder accounts and supporting documents should be maintained.

Starting the Company Before Moving to Dubai

A common sequence is:

1. The founder incorporates the Dubai company while still living in India;
2. The founder starts invoicing customers;
3. The UAE residence visa is processed later;
4. The founder continues managing the business from India for several months; and
5. The founder relocates only after the company becomes operational.

During this initial period, the company may face:

• POEM risk;
• Indian PE exposure;
• Indian tax on services;
• GST questions;
• Transfer-pricing issues;
• FEMA reporting;
• Foreign-asset disclosure; and
• Questions about treaty residence.

The company’s tax position does not retrospectively become UAE-based merely because the founder relocates later.

The pre-relocation and post-relocation periods should be documented separately.

Practical Example: Dubai Consultancy Managed From India

An Indian resident incorporates a Dubai free-zone consultancy company. The company has a flexi-desk, but no UAE employees.

The owner works from Mumbai, negotiates contracts, provides services to customers, controls the bank account and approves every business expense. The UAE company issues invoices and collects the revenue.

The structure raises several Indian questions:

• Is the company’s POEM in India?
• Does it have an Indian fixed-place PE?
• Are the services actually performed from India?
• Is Indian GST applicable?
• Are the owner’s receipts taxable in India?
• Has ODI been correctly reported?
• Has the company interest been disclosed as a foreign asset?
• Does the company qualify as a UAE treaty resident?
• Are free-zone Corporate Tax conditions genuinely satisfied?

The free-zone licence does not answer these questions.

Practical Example: UAE Operating Company With Indian Customers

A Dubai company has UAE-based management, employees, premises and financial records. It provides services from Dubai to Indian customers and has no office or personnel in India.

The fact that customers are located in India does not, by itself, make the company resident in India.

The company should still examine:

• Whether any Indian agent can bind it;
• Whether employees spend substantial time in India;
• Character of the payment under the treaty;
• Indian withholding obligations;
• Whether intellectual-property rights are granted;
• Availability of TRC and Form 10F;
• Transfer pricing with related parties; and
• UAE Corporate Tax treatment.

A factually supported UAE operation is more defensible, but each income stream must still be classified correctly.

Practical Example: Founder Relocates but Family and Management Remain in India

An Indian entrepreneur obtains a UAE investor visa and rents an apartment in Dubai. The entrepreneur spends time in both countries, while the family remains in India and the Dubai company is managed largely through an Indian office.

This arrangement requires separate analysis of:

• The founder’s Indian domestic residence;
• UAE domestic residence;
• Treaty residence;
• Centre of vital interests;
• Company POEM;
• Indian PE;
• Salary and dividend taxation;
• Foreign-asset reporting; and
• FEMA status.

An investor visa is relevant evidence, but it does not determine any of these issues by itself.

Pre-Incorporation Tax Checklist

Before starting a Dubai company, an Indian founder should confirm:

• Personal residence under Indian income-tax law;
• Residence under FEMA;
• Expected days in India and the UAE;
• Ownership structure;
• Whether investment constitutes ODI;
• Available LRS limit;
• Selection of the authorised dealer bank;
• Form FC and UIN requirements;
• Business activity and regulatory permissions;
• Intended management location;
• UAE office and staffing requirements;
• Indian customer and supplier relationships;
• Proposed salary, dividends and other payments;
• Funding through equity or debt;
• Subsidiary and round-tripping restrictions;
• Transfer-pricing policy;
• GST implications;
• UAE Corporate Tax and VAT;
• Treaty eligibility;
• Foreign-asset reporting; and
• Exit and repatriation planning.

Records the Founder Should Maintain

A defensible cross-border structure requires evidence created during normal business operations.

Relevant records include:

• Passport and travel history;
• UAE visa and Emirates ID;
• UAE tenancy agreement;
• Certificate of incorporation;
• Trade licence;
• Memorandum and articles;
• Share certificate;
• Shareholder register;
• Form FC and UIN records;
• LRS remittance documents;
• Board minutes;
• Management reports;
• Contracts and invoices;
• Employee records;
• UAE office documents;
• Bank mandates;
• Accounting records;
• Transfer-pricing analysis;
• UAE Corporate Tax filings;
• VAT returns;
• TRC and Form 10F;
• APR filings;
• Foreign-tax-payment evidence; and
• Indian income-tax disclosures.

Documents should reflect what actually happened. A bundle of retrospectively signed resolutions is not a substitute for genuine management evidence.

Common Mistakes

Indian founders frequently create avoidable risk by:

• Believing that a Dubai licence makes all income tax-free;
• Confusing UAE immigration residence with Indian tax residence;
• Ignoring FEMA residence;
• Paying incorporation costs before completing ODI formalities;
• Assuming a free-zone company automatically qualifies for 0% Corporate Tax;
• Managing the company entirely from India;
• Holding artificial board meetings in Dubai;
• Using nominee directors without genuine authority;
• Performing services in India while invoicing through Dubai;
• Ignoring Indian PE exposure;
• Transferring intellectual property without valuation;
• Paying unsupported management fees;
• Using the company account for personal expenses;
• Failing to document salary and directors’ fees separately;
• Ignoring transfer pricing;
• Treating remittance to India as the only trigger for taxation;
• Omitting the company from foreign-asset disclosures;
• Missing APR or FEMA filings;
• Claiming treaty benefits without a TRC or commercial substance; and
• Reviewing the tax structure only after receiving a notice.

Conclusion

A Dubai company can be an effective platform for international business, but incorporation is only the legal beginning of the structure.

For an Indian founder, the tax outcome depends on personal residence, FEMA status, management location, business substance, source of income and the relationship between Indian and UAE activities.

The most significant risk arises when the company is legally incorporated in Dubai but practically operated from India. Such an arrangement can create POEM, permanent-establishment, GST, transfer-pricing, foreign-asset and FEMA issues at the same time.

The better approach is to design the structure before incorporation. Ownership, funding, management authority, contracts, banking, employee functions, intellectual property and profit allocation should all reflect the intended commercial model.

A genuinely operated Dubai company supported by consistent documentation is easier to defend than a paper structure created solely to redirect invoices or obtain a lower tax rate.

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Disclaimer: This article is intended solely for general educational and informational purposes. It does not constitute legal, tax, FEMA, investment or professional advice. Tax laws, RBI directions, treaty provisions and UAE regulations may change. The treatment of any company or transaction depends on its particular facts, ownership, management, activities and the law applicable to the relevant period. Readers should verify current provisions and obtain professional advice before establishing, funding or operating a Dubai company.

References

• Income-tax Act, 2025, Section 6 — Residence in India and place of effective management
• Income-tax Act, 1961 / Income-tax Act, 2025 — Residential Status provisions
• Principles for determination of Place of Effective Management (POEM) of a Company
• India–UAE Double Taxation Avoidance Agreement and synthesised text incorporating the Multilateral Instrument
• Reserve Bank of India — Foreign Exchange Management (Overseas Investment) Directions, 2022
• Foreign Exchange Management (Overseas Investment) Rules, 2022, Notification No. G.S.R. 646(E), dated 22 August 2022
• Foreign Exchange Management (Overseas Investment) Regulations, 2022, Notification No. FEMA 400/2022-RB, dated 22 August 2022
• Central Board of Indirect Taxes and Customs — Integrated Goods and Services Tax Act, 2017 and GST resources
• Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Rules, 2015