Setting Up a UAE Subsidiary of an Indian Company

An Indian company can own 100% of a UAE subsidiary, in a free zone or, for most activities, on the mainland, provided it invests under India's Overseas Direct Investment (ODI) framework through its bank. The subsidiary then pays UAE corporate tax and VAT on its own position, prices every transaction with its Indian parent at arm's length, and sends profits home under FEMA timelines.

Whether you sell goods or services, the mechanics are the same. For how the UAE fits a wider international plan, start with our guide to India, UAE and UK expansion.

Key points

• An Indian company invests in a UAE subsidiary under the FEMA Overseas Investment Rules and Regulations 2022, through an Authorised Dealer (AD) bank, with Form ODI and a Unique Identification Number (UIN).

• Total financial commitment is generally capped at 400% of the Indian entity's net worth, and an Annual Performance Report (APR) is due every 31 December.

• The UAE subsidiary is subject to 9% corporate tax above AED 375,000 of taxable income. Free zone 0% applies only to qualifying income of a Qualifying Free Zone Person that meets every condition.

• Prices between India and the UAE must be at arm's length in both countries, and profit follows the people, decisions and risks actually located in Dubai.

• Dividends and other dues from the subsidiary must be brought back to India within 90 days of falling due, and they are taxable in India.

Can an Indian company own 100% of a company in Dubai?

Yes. An Indian company can hold 100% of a UAE company in any free zone and, since the UAE amended its Commercial Companies Law in 2021, in most mainland activities as well, subject to a short list of strategic-impact activities (UAE Government portal on foreign ownership). The choice is therefore commercial, not about ownership.

A free zone company suits regional trading, bonded inventory or clients outside the UAE; a mainland company suits selling to UAE customers and bidding for local contracts. Our comparison of Dubai free zone and mainland companies for 2026 walks through licence types, visas and costs in detail.

Should the Indian company or the promoter own the UAE subsidiary?

In most operating cases, the Indian company should own it. If the UAE business sells the Indian company's products or services or uses its people, parent ownership keeps the economics, banking and transfer pricing coherent. Promoter ownership is more restrictive than founders expect.

The individual route rules are in Schedule III of the Foreign Exchange Management (Overseas Investment) Rules 2022. A common mistake is a promoter holding the Dubai entity personally while the Indian company supplies all the goods, people or know-how. That separates ownership from economics, which is exactly what tax officers and banks look for.

What ODI rules apply to a Dubai subsidiary?

An Indian company setting up a Dubai subsidiary is making Overseas Direct Investment, governed by the OI Rules and Regulations 2022 and the RBI Master Direction on Overseas Investment. Most investments fall under the automatic route, so no prior RBI approval is needed, but every step runs through your AD bank. For the full framework, see our guide to ODI rules for Indian companies investing abroad.

The rules that matter most for a first UAE subsidiary:

• Bona fide business. The subsidiary must carry on genuine business activity.

• Financial commitment cap. Equity, debt and non-fund commitments such as guarantees together generally cannot exceed 400% of the Indian entity's net worth, measured on its last audited balance sheet not older than 18 months. Commitments above USD 1 billion in a financial year need prior RBI approval.

• UIN before money moves. A UIN must be obtained before the remittance or the acquisition of equity, whichever comes first. All later transactions for that subsidiary go through the same AD bank.

• Evidence of investment. Share certificates or equivalent documents must be submitted within six months of remittance or capitalisation.

• Round-tripping. If the UAE subsidiary later invests back into India, the structure cannot exceed two layers of subsidiaries.

• Eligibility. An Indian entity under investigation by an enforcement agency, or classified as a wilful defaulter, generally needs a no-objection certificate before investing.

How can an Indian company fund its UAE subsidiary?

The Indian parent can fund the subsidiary through equity, loans, or guarantees, and usually a mix of all three. Equity comes first: under the OI Regulations, a parent can lend only once it holds equity and control, and any loan must carry an arm's-length interest rate. Guarantees given for the subsidiary's bank facilities also count towards the 400% cap.

A trading subsidiary holding inventory and extending customer credit needs working capital, often equity plus bank lines backed by a parent guarantee. A services subsidiary with a small commercial team may need only modest equity until revenues arrive. Heavy loan funding can backfire: see when intra-group loans are recharacterised.

Step by step: setting up a UAE subsidiary of an Indian company

These steps assume the Indian parent owns the subsidiary.

1. Board resolution. The Indian company's board approves the investment, the amount, the UAE jurisdiction and the authorised signatories. Larger commitments may also need shareholder approval under the Companies Act 2013.

2. ODI through the AD bank. Submit Form ODI with the board resolution, the latest audited financials, the net worth calculation and supporting documents. The bank obtains the UIN, after which you remit the share capital.

3. Licence and zone. Choose the free zone or mainland authority, reserve the trade name, secure the licence for the right activities and lease the office or warehouse. The licensed activity should match what the business will actually do.

4. Bank account. Open a UAE corporate account. UAE banks ask for the group structure, the ultimate beneficial owners, the business plan and evidence of real operations.

5. Evidence of investment. File share certificates with your AD bank within six months of remittance.

6. Corporate tax and VAT registration. Register the subsidiary for UAE corporate tax with the Federal Tax Authority, and for VAT once taxable supplies exceed the mandatory threshold of AED 375,000 over 12 months (voluntary registration is available from AED 187,500).

7. Transfer pricing. Put written intercompany agreements in place before the first invoice: purchase and supply terms, service agreements, cost recharges and any loan. Benchmark the pricing in both countries.

8. Annual reporting and APR. The subsidiary files UAE corporate tax returns within nine months of year end. In India, file the APR by 31 December each year and report India–UAE transactions in the transfer pricing report, Form 48 under the Income-tax Act 2025 (replacing Form 3CEB). Late APRs attract a late submission fee and are allowed only within three years.

9. Repatriation of dividends. Declare dividends from audited UAE profits, remit them to India and report them through the AD bank. Under the OI Regulations, dividends and other dues must be realised and repatriated within 90 days of falling due.

How is a UAE subsidiary taxed in the UAE?

A UAE subsidiary pays 0% corporate tax on taxable income up to AED 375,000 and 9% above that, under Federal Decree-Law No. 47 of 2022 (Federal Tax Authority). A free zone company pays 0% only if it is a Qualifying Free Zone Person (QFZP), and then only on qualifying income. Never plan on zero tax.

To be a QFZP, the company must, among other conditions, maintain adequate substance in the free zone, earn qualifying income, keep non-qualifying revenue within the de minimis limit (the lower of 5% of total revenue or AED 5 million), prepare audited financial statements and comply with transfer pricing rules (FTA free zone bulletin). Breaching the de minimis limit costs QFZP status for that period and the following four.

Our guide to UAE corporate tax for free zone companies and QFZP rules covers which income qualifies.

• Small Business Relief applies to resident businesses with revenue of AED 3 million or less, for tax periods ending on or before 31 December 2026. It is not available to a QFZP or to members of large multinational groups.

• VAT is charged at 5%. Supplies within and out of designated zones follow special rules, explained in our note on VAT for free zone companies in the UAE.

How does transfer pricing work between India and a UAE subsidiary?

The Indian parent and its UAE subsidiary are associated enterprises, so every transaction between them must be priced as if they were unrelated, in both India and the UAE. The price follows what each entity actually does: its functions, the assets it uses and the risks it bears.

• Goods. A Dubai company that buys from the Indian factory and resells across the GCC earns a margin linked to its distribution functions, inventory risk and credit risk. If India negotiates the deals and Dubai only invoices, Dubai's margin should be thin. Indian exporters and traders in this position can read our guide to Dubai and UAE setup for Indian exporters, traders and distributors.

• Services. If a Dubai team wins and manages clients while an Indian team delivers, India typically earns an arm's-length return for delivery and Dubai earns for sales, account management and commercial risk. Service firms weighing this model can see our guide to expanding an Indian services business to Dubai.

In the UAE, a Master File and Local File are required only if the subsidiary's revenue is AED 200 million or more, or the group's revenue is AED 3.15 billion or more, but the arm's-length rule applies to everyone. Our practical guide to transfer pricing for India–UAE groups shows how to set and document these prices.

What substance does a UAE subsidiary need?

A UAE subsidiary needs enough real people, premises and decision-making in the UAE to match the profit it reports. Substance now matters through QFZP conditions, transfer pricing and Indian residence rules.

The Indian risk is often the bigger one. Under the Income-tax Act 2025, in force from 1 April 2026, a foreign company is resident in India if its place of effective management is in India, meaning key management and commercial decisions are in substance made here (Income-tax Act 2025, as amended).

If the Dubai board is a formality and every decision is taken in Mumbai, the subsidiary's worldwide profit can be taxed in India. Read how founder behaviour quietly shifts tax residency and our note on permanent establishment risk between India and the UAE.

How are dividends from a UAE subsidiary taxed in India?

Dividends from the UAE subsidiary are taxable in the Indian parent's hands at its applicable corporate tax rate. The old concessional 15% rate for dividends from foreign subsidiaries ended from assessment year 2023–24.

The UAE does not currently charge withholding tax on dividends paid to non-residents, so a foreign tax credit is normally limited.

Where the Indian company passes the dividend on to its own shareholders, a deduction for the redistributed amount is generally available. The India–UAE tax treaty caps source-country tax on dividends at 10%, and, under the 2007 protocol, treats a UAE company as resident only if it is incorporated in the UAE and managed and controlled wholly there.

That residence test is another reason governance must sit in Dubai. Our explainer on the India–UAE DTAA for dividends, gains and business profits has more.

The Greenwolf view

Most clients first ask which free zone is cheapest or what the Dubai tax rate is. Those are the last questions. The first is: what will the UAE actually do, and what will India actually do?

For a goods business, the UAE can be a customer market, a GCC distribution hub or a trading and re-export hub. For a services business, it can be a sales and contracting layer over Indian delivery or a regional headquarters. Each role implies different people in Dubai, different contracts and a different profit split.

Take a ₹150 Cr Pune engineering company with ₹25 Cr of GCC sales through distributors. If it moves to a Dubai subsidiary with a regional sales head, stock in Jebel Ali and customer credit managed locally, the subsidiary performs real functions and can defend a real distribution margin. A staffless Dubai entity that simply re-invoices gains little and inherits compliance, transfer pricing and residence risk.

So we work through it in stages:

• Stage 1: Is the UAE a market, a hub or a headquarters for you, and which customers will it serve?

• Stage 2: Which functions, people and risks will sit in the UAE, and which stay in India?

• Stage 3: Who should own it, how should it be funded under ODI, and is free zone or mainland the right base?

• Stage 4: What do intercompany contracts and pricing look like, and how will profits return or be reinvested?

Commercial design comes first. Tax follows functions, risks and substance.

Talk to Greenwolf

Whether you are planning a UAE subsidiary or already have one, Greenwolf Advisors can help you decide what the UAE should do, who should own it, how to fund it under ODI, and how to price and document every flow between India and Dubai. Speak to our team before you file Form ODI, not after.

This article is general information, not advice for a specific case.