India-UAE DTAA: Dubai planning for Indian founders, post-CT reality

The India-UAE treaty (in force from 1994, with significant 2007 and 2012 protocols) was the workhorse of low-tax structures for two decades because the UAE charged no corporate tax. From 1 June 2023, the UAE introduced a 9% federal corporate tax on profits above AED 375,000, with a 0% rate for qualifying free-zone persons that meet substance and de-minimis rules. The treaty still matters, but the planning has flipped from rate arbitrage to substance and free-zone qualification.

Article 10 caps dividend withholding at 10%. Article 11 caps interest at 5% (when paid to banks or financial institutions) and 12.5% otherwise; in practice India does not levy withholding on outbound interest to UAE banks where conditions are met. Article 12 caps royalties at 10%. The capital gains article (Article 13) historically allowed UAE residents to avoid Indian tax on alienation of Indian company shares, but the 2017 amendment for treaty-shopping plus India's GAAR and PPT have narrowed this for shell entities. The treaty also has a tie-breaker for individual residency that turns on permanent home, centre of vital interests and habitual abode.

Mainland UAE companies now pay 9% corporate tax above AED 375,000 of taxable profit. Free-zone companies can access a 0% rate on qualifying income if they maintain adequate substance, meet de-minimis non-qualifying-income thresholds, and do not elect into the standard regime. Founders who built holding companies in JAFZA, DIFC or ADGM should re-paper their substance: real office, qualified staff, board meetings in UAE, and decision-making documented locally. Without these, the Indian Assessing Officer can invoke POEM (place of effective management) under Section 6(3) and tax the UAE company as an Indian resident.

An individual qualifies as a UAE tax resident under Cabinet Decision 85 of 2022 if present in the UAE for 183 days, or 90 days with a permanent home and economic ties. The Federal Tax Authority issues the TRC online; Indian banks and the Indian payer rely on this plus Form 10F for treaty benefits. Note the Indian deemed-residency rule under Section 6(1A): an Indian citizen with income above INR 15 lakh from Indian sources who is not liable to tax in any other country is deemed an RNOR. UAE residents have a real tax (9%/0% corporate, personal still nil), so the deeming rule typically does not trip.

Three patterns recur. A DIFC or ADGM holdco for international IP and investments, paired with an Indian operating subsidiary. A free-zone trading entity (e.g., DMCC) for cross-border goods or services, claiming the 0% qualifying-free-zone rate. A mainland LLC for UAE-customer-facing businesses. In all three, substance is the binding constraint after the 2023 reforms: lease, employees, board minutes, bank account operated from the UAE. Without these, both the UAE 0% benefit and the treaty residency claim collapse.

Is the UAE still tax-free after June 2023?
Personal income remains untaxed. Corporate tax is now 9% above AED 375,000 of taxable profit. Qualifying free-zone persons can keep a 0% rate on qualifying income if they meet substance and de-minimis rules.

Can I still avoid Indian capital gains tax on share sales via a Dubai holdco?
Only if the UAE entity has genuine substance and beneficial ownership, and is not caught by GAAR or the PPT in the multilateral instrument. Shell holdcos no longer work; the Indian assessing officer will look through.

What is the dividend withholding rate under the treaty?
Article 10 caps dividend withholding tax at 10% when paid from India to a UAE resident. The Indian payer needs the UAE TRC, Form 10F and a beneficial ownership confirmation to apply the treaty rate at source.

How many days do I need to spend in the UAE to be a tax resident?
Under Cabinet Decision 85 of 2022, 183 days makes you a UAE tax resident automatically. 90 days plus a permanent home and economic ties also qualifies. The Federal Tax Authority issues the TRC online after these tests are met.

Does India recognise the UAE TRC even though the UAE has no personal income tax?
Yes. The Indian protocol amendment of 2007 specifically clarified that UAE residents are treaty residents even where there is no actual tax liability, provided the FTA issues a TRC.

What happens if my UAE holdco fails the substance test?
It can be denied treaty benefits under the PPT, and may be treated as an Indian tax resident under POEM rules in Section 6(3). The Indian tax authority can tax worldwide income at Indian corporate rates.