India–UAE DTAA Explained

Yes. India and the UAE have a comprehensive double taxation avoidance agreement (DTAA), signed in New Delhi on 29 April 1992 and in force since 22 September 1993. It has been amended by protocols and by the OECD Multilateral Instrument. Among other things, it caps Indian tax on dividends paid to a UAE resident beneficial owner at 10%.

Key points

• Treaty caps on source-country tax: dividends 10%, interest 5% (banks) or 12.5% (others), royalties 10%.

• Since the 2007 protocol, India can tax gains on shares of Indian companies sold by UAE residents (Article 13(4)).

• A UAE individual needs at least 183 days in the UAE in the calendar year to be a treaty resident. A UAE company must be managed and controlled wholly in the UAE.

• The Principal Purpose Test, added through the MLI, can deny any treaty benefit obtained mainly for tax reasons.

• The treaty works best for real operating structures, such as an Indian company expanding to Dubai with people and contracts on both sides.

Does India have a DTAA with the UAE?

Yes. The India–UAE DTAA is a full income tax treaty. India notified it by Notification GSR 710(E) dated 18 November 1993, and it has applied in India since the 1994-95 year. Three later changes matter most:

Two newer developments change how the treaty is used. India's Income-tax Act, 2025 took effect on 1 April 2026, and treaty relief now sits in section 159 of that Act. On the UAE side, corporate tax at 9% has applied since financial years starting on or after 1 June 2023. That gives the UAE a real tax base on business profits and changes some of the older arguments about whether UAE companies are "liable to tax".

How are dividends, interest, royalties and service fees taxed?

The treaty sets maximum rates that the source country can charge. The country of residence can also tax the income and must give credit for the source-country tax (Article 25).

In practice, the direction of payment matters.

Payments from India to the UAE. India's domestic withholding rates on payments to non-residents are often higher than the treaty rates. A UAE resident can rely on the lower treaty rate if it is the beneficial owner and provides a valid tax residency certificate (TRC) and the details required in Form 41.

India applies whichever of the treaty or the domestic law is more favourable to the taxpayer.

Payments from the UAE to India. The UAE currently applies 0% withholding tax on payments to non-residents under Article 45 of its Corporate Tax Law. A dividend from a UAE subsidiary to its Indian parent therefore usually arrives without UAE tax, and is taxed in India under Indian rules.

Fees for technical services. Many Indian treaties have a separate article for fees for technical services. The India–UAE treaty does not, and its royalty definition in Article 12(3) does not cover technical or consulting services.

Fees paid by an Indian company to a UAE service provider are therefore generally treated as business profits under Article 7, taxable in India only if the UAE provider has a permanent establishment in India. Each case needs checking on the facts, particularly where software, equipment use or know-how is involved, because those payments can fall within "royalties".

Capital gains under the India–UAE DTAA

Article 13 now has five paragraphs, following the 2007 protocol:

• 13(1): Gains on immovable property may be taxed where the property is situated.

• 13(2): Gains on business assets of a permanent establishment may be taxed where the permanent establishment is.

• 13(3): Gains on shares of a company whose property consists principally of immovable property may be taxed where that property is situated.

• 13(4): Gains on other shares in a company may be taxed in the country where that company is resident.

• 13(5): Gains on any other property are taxable only in the seller's country of residence.

So a UAE resident selling shares of an Indian company is generally taxable in India under Indian law, with no treaty exemption. Before 1 April 2008 the position was different, which is why older articles and some websites still describe the treaty as exempting share gains. They are out of date.

What about mutual funds?

Mutual fund units are the main area of dispute. Indian mutual funds are trusts, not companies, and Indian tribunals have held that their units are not "shares" for Article 13(4). On that view, gains fall under Article 13(5) and are taxable only in the UAE.

The Cochin bench of the Income Tax Appellate Tribunal (ITAT) took this view in DCIT v K.E. Faizal (ITA 423/Coch/2018, 8 July 2019). The Delhi bench followed it in Saket Kanoi v DCIT (ITA 3243/Del/2023, order dated 23 October 2024).

The Delhi bench also rejected the argument that a UAE individual cannot claim the treaty because the UAE does not tax individuals' income.

These are tribunal decisions, not Supreme Court law, and the Principal Purpose Test applies to every claim. An NRI who keeps genuine UAE residence and holds Indian funds in the normal course is in a stronger position than someone who moves to Dubai briefly before a large redemption.

Tax residency certificates and the 183-day question

To claim the treaty you must be a resident of the UAE under Article 4, not just a UAE visa holder.

• UAE individuals: Article 4(1)(b) treats an individual as a UAE resident only if present in the UAE for at least 183 days in the calendar year concerned. This treaty test is separate from the UAE's own domestic residency rules.

• UAE companies: A company must be incorporated in the UAE and managed and controlled wholly in the UAE. A Dubai company whose board decisions are in practice taken by a founder sitting in Mumbai may fail this test.

• Dual residence: For individuals resident in both countries, Article 4(3) applies the usual tie-breakers: permanent home first, then centre of vital interests, habitual abode and nationality.

The paperwork. The UAE Federal Tax Authority issues TRCs through the EmaraTax portal. On the Indian side, section 159 of the Income-tax Act, 2025 requires a non-resident claiming treaty relief to provide a TRC plus prescribed details, filed online in Form 41.

Founders often break residence through their own behaviour, not through the structure on paper. We explain how in our article on how founder behaviour quietly shifts tax residency. In India, a foreign company whose place of effective management is in India can be treated as Indian resident and taxed in India on its worldwide income.

Permanent establishment under the treaty

A permanent establishment (PE) is a taxable presence that lets the other country tax the business profits attributable to it. Article 5 of the India–UAE treaty defines it in four main ways:

• Fixed place: an office, branch, place of management, factory or workshop through which the business is carried on.

• Construction: a building site, construction or assembly project, or related supervisory activity lasting more than 9 months.

• Services: furnishing services, including consultancy, through employees or other personnel in the other country for the same or a connected project for more than 9 months in aggregate within any 12-month period.

• Dependent agent: a person who habitually exercises authority to conclude contracts on behalf of the enterprise.

Two common corridor examples:

• A ₹120 Cr Pune engineering services firm sends a team to a Dubai client's site for a 10-month connected programme. That can create a service PE in the UAE, and the UAE can tax the profit attributable to that work.

• A Dubai company has a business development head based in Bengaluru who negotiates and signs client contracts. That can create a dependent agent PE in India, so India can tax part of the Dubai company's profit.

Our detailed guide to UAE permanent establishment rules covers these risks, including remote work and short business visits. Once a PE exists, how much profit belongs to it is a pricing question. That links directly to transfer pricing in India and the UAE for the related-party flows in the group.

Principal Purpose Test: when treaty benefits are denied

The Principal Purpose Test (PPT) denies a treaty benefit where it is reasonable to conclude that obtaining the benefit was one of the principal purposes of an arrangement, unless granting it would be in line with the object and purpose of the treaty.

The India–UAE treaty already had an anti-abuse clause. The 2007 protocol's Article 29 denied benefits to an entity created mainly to obtain treaty benefits, or one without bona fide business activities. Under the MLI, the synthesised text released by the CBDT replaces Article 29 with the PPT, effective in India from 1 April 2020.

The CBDT issued Circular No. 01/2025 on 21 January 2025, with guidance on how the PPT is applied. It confirms that the PPT applies prospectively from the date it took effect in each treaty, and that the test is fact-based and decided case by case. For a full discussion, read why the Principal Purpose Test is a must-do before going global.

In practice, the PPT asks what the arrangement achieves apart from the tax result. A UAE company with a regional team, real clients and decisions taken in Dubai has a commercial answer. A UAE entity with no staff that sits between an Indian business and its customers usually does not.

The Greenwolf view: commercial design first, tax follows functions

The treaty does not create savings by itself. It allocates taxing rights based on where people, assets, contracts and decisions actually are. Our starting questions for any India–UAE structure are:

1. Ownership: Is the UAE entity owned by the Indian company, the promoter, or another holding layer, and does that fit the ODI rules under FEMA?

2. Functions: Who wins clients, signs contracts, delivers the work and bears the risk, and in which country?

3. Residence: Will the UAE company genuinely be managed and controlled wholly in the UAE? Where will the founder spend the year?

4. PE exposure: Will any team members work across the border long enough, or with enough authority, to create a PE?

5. Pricing: What does each entity pay the other, and can the transfer pricing file defend it in both countries?

6. Repatriation: How will cash move back as dividends, service fees, royalties or interest, and what does each route cost under the treaty and domestic law?

If the answers point to real activity in the UAE, the treaty generally supports the structure. If they don't, the PPT, Indian residence rules and transfer pricing will generally undo it.

Planning a move?

The treaty is one part of the corridor. For the full commercial and tax picture of building a Dubai presence for an Indian business, read our guide to expanding an Indian services business to Dubai, and follow Greenwolf Advisors on LinkedIn for corridor updates.

This article is general information, not advice for a specific case. Take advice on your own facts before acting.