Where Should Your Group's IP Sit

Your group's IP should sit where it is actually developed, enhanced, maintained, protected and exploited, and where the people who control those functions work. A UAE IP holding company, a UK patent box or India's 10% patent regime can each help, but only when development and control are genuinely in that country.

• Under the OECD DEMPE framework, returns from IP follow the functions, assets and risks, not legal title alone.

• The UAE's 0% QFZP rate covers only qualifying IP (patents, copyrighted software and equivalents) and only in proportion to R&D done in the UAE or bought from unrelated parties.

• The UK patent box gives an effective 10% rate on qualifying patent profits, subject to development, active ownership and nexus conditions.

• Moving IP out of India is a transfer pricing event, can trigger capital gains, and is reviewed for substance and anti-avoidance.

• For most India-UAE-UK groups, the right answer is to leave IP where the engineers and decision-makers are, and remunerate other entities at arm's length.

Why does it matter where a group's IP sits?

IP location decides which entity earns the residual profit after routine functions are paid. For a software, pharma or engineering group, that residual is often most of the margin, so IP placement quietly determines where profits, tax and long-term value end up. Our Go Global with Greenwolf guide places this decision within the wider journey across jurisdictions.

It also matters for fundraising and exits. Investors and acquirers want clean title in the entity they buy into, which is why IP is often reorganised when a group sets up a UK holding company.

What is DEMPE, and why does it decide who earns the IP return?

DEMPE stands for the development, enhancement, maintenance, protection and exploitation of intangibles. Under Chapter VI of the OECD Transfer Pricing Guidelines, legal ownership alone entitles an entity to little more than a routine return. The returns go to the entities that perform and control the DEMPE functions, fund them and can bear the risks.

In practice, a UAE company that holds a patent while all R&D, product decisions and patent strategy happen in Bengaluru is a legal owner with a thin claim to the profit. India can attribute the residual to the Indian entity through transfer pricing, and the UAE entity's income may not qualify for any preferential regime.

Our earlier piece on IP placement, DEMPE and the limits of tax-driven structuring explores this in depth.

Control means real people approving the R&D budget, deciding what to build and choosing where to file and defend patents. If those people are in India, the IP's economic home is India, whatever the register says.

How does the UAE treat income from IP held in a free zone?

A Qualifying Free Zone Person (QFZP) can apply 0% corporate tax to income from qualifying IP, but only to the extent set by a nexus fraction. Other income is generally taxed at 9%. Our explainer on UAE corporate tax for free zone companies covers the wider QFZP tests.

Under Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 265 of 2023, qualifying IP means patents, copyrighted software and certain functionally equivalent rights. Marketing-related IP, such as trademarks, is excluded.

The share of IP income that qualifies is calculated by a nexus formula. Qualifying expenditure means R&D done by the QFZP itself, or outsourced to anyone in the UAE or to unrelated parties abroad, and it can be uplifted by 30% but not above overall expenditure. Overall expenditure includes R&D outsourced to related parties and acquisition costs.

This is the point many India-UAE groups miss. R&D paid to your own Indian subsidiary is related-party outsourcing outside the UAE, so it counts in overall expenditure but not in qualifying expenditure. If the Indian team does all the development, the nexus fraction can be very low, and most of the UAE company's IP income may fall outside the 0% rate.

Large groups also need to consider the UAE's 15% Domestic Minimum Top-up Tax, which applies from 2025 to multinational groups with revenue of at least EUR 750 million. Our article on GloBE (Pillar Two) explains how the minimum tax limits low-tax IP structures at scale.

How does the UK patent box work for IP held in a UK company?

The UK patent box lets a company apply an effective 10% corporation tax rate to profits from qualifying patents, against a main rate of 25%. The detailed conditions are on GOV.UK.

The patent must be granted by the UK IPO, the European Patent Office or certain EEA offices. The company, or a group member, must have made a significant contribution to developing the invention, and must actively own and manage its patent portfolio. The election must be made within two years after the end of the accounting period.

Like the UAE, the UK applies a nexus fraction. Related-party R&D and acquired IP reduce the share of profit that qualifies, so a UK company holding patents developed by an Indian affiliate generally gets limited benefit. Software protected only by copyright does not qualify.

The UK suits groups whose product, engineering or regulatory teams are genuinely in Britain.

What does India look for when IP is moved out?

Moving IP out of India is an international transaction that must be priced at arm's length under the transfer pricing provisions, now sections 161 to 173 of the Income-tax Act, 2025. Valuing IP is contentious, and the Indian tax department will test both the price and whether the Indian entity still performs DEMPE functions after the transfer.

Our guide to transfer pricing for India-UAE and India-UK groups covers the methods and documentation.

A transfer can also trigger capital gains in India. For self-generated intangibles, the cost of acquisition may be nil, so the gain can be close to the full consideration. Indian GAAR and treaty principal purpose tests can apply if the main purpose is tax; see our note on the Principal Purpose Test.

The harder issue is what happens after the move. If the Indian team continues to develop and control the IP, India can treat the Indian entity as entitled to a share of the residual return, regardless of the sale.

The Indian entity then becomes a contract R&D provider, which is the scenario covered in our article on transfer pricing for captive service and R&D centres in India. Our piece on exit tax and moving the structure explains the wider exit picture.

India also offers its own incentive. Resident patentees can opt for a 10% rate on royalty from patents developed and registered in India, under section 194 of the Income-tax Act, 2025 (formerly section 115BBF), with no deduction for expenses.

How are royalties taxed when IP sits outside India?

If an Indian company pays royalties to a group IP owner abroad, India generally withholds tax. Under the India-UAE tax treaty, tax on royalties is capped at 10% of the gross amount; under the India-UK treaty, generally 15%, or 10% for equipment royalties, subject to beneficial ownership and treaty conditions. Our comparison of dividends, service fees and royalties explains when each is the right way to move profit.

Paying a royalty to a UAE company for IP that Indian engineers built and still maintain is a frequent audit trigger.

The Greenwolf view

IP should follow the business, not the other way round. We ask where the engineers, product leaders and patent decisions sit today, and where they will sit in three years. Wherever that is, the IP usually belongs, and other entities are remunerated at arm's length for what they do.

The stage questions we work through: Is the IP patents, software or brand? Who funds development and who carries the risk if it fails? Is there a commercial reason, such as investors, acquirers or regulators, to hold IP in a particular entity? If IP moves, what will India charge on exit, and will the remaining Indian team change role in substance?

Sometimes the answer is to move IP, for example when a senior technical team has genuinely relocated to London or Dubai. More often it is to keep IP in India, use India's own incentives, and let UK or UAE entities earn a fair return for sales, distribution or regional management. Economic substance and POEM rules make paper-only IP companies hard to defend.