The India-UAE corridor is one of the most active business relationships in Asia. The UAE is consistently among India’s top three trading partners, bilateral trade exceeds $85 billion annually, and the two countries signed a Comprehensive Economic Partnership Agreement (CEPA) in 2022 that has further accelerated cross-border business activity. For UAE-based companies — whether founded by Indian entrepreneurs, Emirati conglomerates, or international businesses using the UAE as a regional hub — setting up an Indian entity is an increasingly common and commercially logical step.
But setting up in India from the UAE is not the same as setting up from the UK or the US. There are specific RBI and FEMA considerations that apply to UAE-origin investments, nuances around the India-UAE Double Tax Avoidance Agreement (DTAA), and practical questions around how UAE free zone companies and mainland companies are treated differently under Indian FDI rules.
This guide covers everything a UAE or Dubai-based business needs to know before setting up in India — from choosing the right structure to staying compliant after you are up and running.
Why UAE Companies Are Expanding to India
The talent and cost equation
For UAE-based IT companies, engineering firms, and trading businesses, India offers access to one of the world’s deepest talent pools at a cost structure that is simply not replicable elsewhere. Senior software engineers, civil and mechanical engineers, finance professionals, and operations staff are available in large numbers in cities like Pune, Bengaluru, Hyderabad, Mumbai, and Chennai. Employment costs — including statutory contributions — are a fraction of what comparable roles cost in the UAE.
NRI and Indian-origin founders
A significant portion of UAE businesses are owned or co-owned by Indian nationals or NRIs. For these founders, setting up in India is often both a business decision and a personal one — accessing the Indian market, building for Indian customers, or bringing operations closer to family. The FDI rules treat NRI-owned foreign entities the same as any other foreign investor for most purposes, though there are specific provisions worth understanding.
The India-UAE CEPA advantage
The Comprehensive Economic Partnership Agreement signed in 2022 has reduced or eliminated tariffs on a wide range of goods traded between the two countries and opened new opportunities for service businesses. Companies with operations in both countries are well-positioned to take advantage of preferential treatment under the CEPA.
Market access
India’s domestic market — 1.4 billion people, a rapidly growing middle class, significant infrastructure investment, and expanding digital adoption — is attractive across sectors. Trading companies, real estate developers, construction firms, technology companies, and professional services businesses all have strong reasons to establish a direct India presence rather than operating through agents or distributors.
Step 1: Choose the Right Business Structure
The right structure depends on what you want to do in India, how you want to repatriate profits, and how much regulatory complexity you are willing to manage. Here are the main options.
Private Limited Company (Wholly Owned Subsidiary)
For most UAE companies, a Private Limited Company (Pvt Ltd) incorporated in India is the correct structure. It is a separate legal entity, distinct from your UAE parent, and can hire employees, hold assets, open bank accounts, sign contracts, and pay dividends back to the UAE parent under RBI guidelines.
Under India’s FDI policy, the UAE qualifies for FDI under the automatic route in most sectors — meaning no prior government approval is needed. Your UAE entity invests in the Indian Pvt Ltd, holds shares, and the Indian company operates as a wholly owned subsidiary.
One important nuance: UAE free zone companies are treated as foreign entities for Indian FDI purposes, the same as UAE mainland companies. There has historically been some ambiguity around whether free zone entities constitute “persons resident outside India” under FEMA, but current RBI guidance treats them as eligible foreign investors for standard FDI purposes. That said, it is worth confirming the specific free zone entity type with your Indian CA before proceeding, as structuring details matter.
Best for: IT companies, trading companies, engineering firms, professional services, any company planning sustained India operations.
Branch Office
A Branch Office is an extension of the foreign parent — not a separate legal entity. It requires prior RBI approval and is limited to activities specified in that approval. Manufacturing and retail are not permitted through a branch office. For UAE companies in services or trading, a Branch Office is technically possible but the added regulatory complexity (RBI approval, ongoing remittance requirements, parent company liability) makes a Pvt Ltd subsidiary a better choice in most cases.
The one scenario where a branch office might be considered is a UAE bank or financial institution looking to have a regulated presence in India — but this is a specialist area with its own regulatory framework.
Best for: Limited, specific use cases only — not recommended as the default for most UAE businesses.
Liaison Office
A Liaison Office can only represent the foreign parent and carry out market research or promotional activity. It cannot earn revenue, sign commercial contracts, or employ staff for operational purposes. It is funded entirely by inward remittances from the parent.
For UAE companies evaluating India before committing to a full setup, a Liaison Office provides a legal footprint. But most UAE companies that are serious about India skip this stage and go directly to a Pvt Ltd subsidiary.
Best for: Early-stage market exploration only.
Project Office
A Project Office is a structure specifically for UAE (or other foreign) companies that have secured a specific contract in India and need a legal entity to execute it. It is commonly used in construction, infrastructure, and EPC (engineering, procurement, and construction) contracts.
The Project Office exists only for the duration of the specific project. It requires RBI approval (or filing under the general permission route for certain contracts) and must be wound up once the project is complete.
Best for: Construction, infrastructure, and EPC companies executing a specific India contract.
Employer of Record (EOR)
An EOR service allows you to hire Indian employees through a third-party Indian company that acts as the legal employer while your UAE company retains operational direction. It is useful as a bridging arrangement while your Indian entity is being incorporated, or for companies that want to test the India market with a small team before committing to their own structure.
EOR becomes expensive at scale and limits your direct employment relationship with your team. Most companies that start with EOR transition to their own Pvt Ltd once they have more than 8–10 employees.
Best for: Hiring quickly before entity is ready, small teams testing the market.
Step 2: Understand India’s FDI Rules for UAE Investors
Foreign investment into India is governed by the Foreign Exchange Management Act (FEMA), administered by the Reserve Bank of India (RBI) and the Department for Promotion of Industry and Internal Trade (DPIIT).
Automatic Route vs Approval Route
Most sectors in India allow 100% FDI from UAE investors under the automatic route — no prior government approval required. This covers IT services, software development, engineering services, trading, manufacturing in most sub-sectors, hospitality, real estate development (with conditions), and most professional services.
The approval route applies to a smaller number of sectors including defence above certain thresholds, media, pharmaceuticals (brownfield, above 74%), and a handful of others. If your business touches these sectors, factor in additional time for government approval.
The Pakistan and Bangladesh Exception
India’s FDI policy requires government approval for investments from entities in countries that share a land border with India — specifically China, Pakistan, Bangladesh, Nepal, Myanmar, Bhutan, and Afghanistan. The UAE does not share a land border with India, so UAE-origin investments are not subject to this restriction.
Capital Structure and Valuation
When your UAE company invests in the Indian subsidiary by subscribing to shares, the price per share must be at or above the fair market value determined by a SEBI-registered merchant banker or a Chartered Accountant using a RBI-recognised valuation methodology (typically the DCF method or NAV method for early-stage companies).
This valuation requirement exists to ensure that capital is not being transferred out of India at below-market prices. Your Indian CA will prepare a valuation certificate as part of the incorporation and share issuance process.
FC-GPR Filing
Within 30 days of the Indian company allotting shares to your UAE entity, an FC-GPR (Foreign Currency — Gross Provisional Return) must be filed with the RBI through the FIRMS portal. This is non-negotiable and the 30-day deadline is strict. Missing it requires a compounding application to the RBI — a process that takes time and incurs a fee.
Annual FLA Return
Every Indian company with outstanding foreign investment must file a Foreign Liabilities and Assets (FLA) Return with the RBI by 15 July each year. This reports the position of inward FDI as at 31 March. Missing this filing attracts penalties.
Repatriation of Profits
Dividends paid by your Indian subsidiary to your UAE parent are subject to a withholding tax in India. Under the India-UAE DTAA, this rate is reduced from the standard rate — see Step 6 for details. Profits can be freely repatriated subject to payment of applicable taxes and completion of required filings.
Step 3: Incorporate Your Indian Company
Directors and Registered Office
A Private Limited Company requires at least two directors, and at least one must have been resident in India (182+ days in the previous financial year) under Section 149 of the Companies Act 2013. The UAE parent is the shareholder — it does not need to be a director.
Each director needs a Digital Signature Certificate (DSC) and a Director Identification Number (DIN) before the incorporation filing can proceed.
You also need a registered office address in India from day one — a virtual office address is acceptable for registration purposes, though you will need a physical office address eventually for GST registration in most states.
Documents Required from the UAE Side
The UAE parent company will need to provide:
- Certificate of Incorporation (from UAE authority — DIFC, ADGM, mainland DED, or relevant free zone authority)
- Memorandum and Articles of Association
- Board Resolution authorising the India investment and nominating the Indian company’s directors
- Proof of registered address of the UAE entity
These documents need to be apostilled — the UAE acceded to the Hague Apostille Convention in January 2021, which significantly simplified this process. Documents issued by UAE authorities can now be apostilled directly, rather than requiring consular legalisation.
MCA Incorporation Process
Incorporation is filed through India’s Ministry of Corporate Affairs (MCA) portal using the SPICe+ form, which bundles incorporation, PAN, TAN, DIN, and other registrations into a single application. The MCA typically processes straightforward applications within 5–10 working days once the application is complete and correct.
Post-Incorporation Steps
Immediately after incorporation:
- Open an Indian corporate bank account (required to receive the inward remittance from the UAE)
- Receive capital remittance from UAE parent via banking channels (SWIFT)
- Allot shares to UAE parent against the remittance
- File FC-GPR with RBI within 30 days of allotment
- Register for GST
- Register for PAN and TAN (bundled with incorporation via SPICe+)
- Register for Professional Tax (state-specific)
- Register for PF and ESI before first hire
Step 4: GST and Accounting Setup
GST Registration
India’s Goods and Services Tax (GST) applies to most supplies of goods and services. For a UAE company’s Indian subsidiary, GST registration is required if annual turnover will exceed INR 20 lakh (or INR 10 lakh in certain states). In practice, most subsidiaries cross this threshold quickly.
For IT and service companies: If your Indian subsidiary is providing services to your UAE parent and receiving payment in foreign currency, those services likely qualify as zero-rated exports under GST. This means you charge 0% GST on invoices to the UAE parent and can claim refunds on input GST paid on your Indian expenses. Getting this classification right from the start is important — incorrectly charging 18% GST on inter-company service invoices is a common and costly error.
For trading companies: If your Indian entity is importing goods from the UAE and selling in India, GST at the applicable rate applies to domestic sales. Imports are subject to Basic Customs Duty (BCD) and IGST at the port of entry. Preferential duty rates under the India-UAE CEPA may apply to goods originating in the UAE — worth checking at the product level before finalising your import model.
For construction and real estate companies: GST applies to construction services at rates that vary by project type. The input tax credit position for real estate projects is a specialist area and should be reviewed carefully before structuring contracts.
Monthly GST Compliance
Key monthly returns:
- GSTR-1: Outward supply details (monthly or quarterly depending on turnover)
- GSTR-3B: Summary return with tax payment (monthly)
- GSTR-2B: Auto-populated input tax credit reconciliation (monthly)
Reconciling your purchase register against GSTR-2B each month is essential — input credit is only available on invoices that appear in your GSTR-2B, which depends on your suppliers filing their returns correctly.
Accounting Systems
Tally remains the dominant accounting software for Indian compliance — it handles GST returns, TDS, payroll, and financial reporting in Indian formats. Zoho Books is an increasingly popular alternative, particularly for subsidiaries that want cloud-based accounting with API integrations. Both are GST-compliant.
For UAE parent companies that use software like QuickBooks, Xero, or SAP, a consolidation bridge to the Indian accounting system needs to be established from the start to avoid a data reconciliation problem later.
Transfer Pricing
Transactions between your UAE parent and Indian subsidiary — service fees, management charges, royalties, inter-company loans, goods sold between entities — are subject to Indian transfer pricing rules under Section 92 of the Income Tax Act. These transactions must be priced at arm’s length and documented. If total inter-company transactions exceed INR 1 crore in a year, an annual Transfer Pricing report (Form 3CEB) signed by a Chartered Accountant is mandatory.
The India-UAE trading relationship means inter-company transactions for many UAE-India setups can be significant — trading companies in particular may have high-value transactions flowing between the entities. Documenting the pricing methodology before transactions begin is far simpler than reconstructing it during a tax assessment.
Step 5: HR, Payroll, and Labour Compliance
Employment Contracts
Indian employment contracts should clearly cover notice periods, confidentiality, IP assignment, and applicable law. For IT and engineering companies, IP assignment is critical — all code, designs, and inventions created by Indian employees should be assigned to the Indian entity (and from there to the group as needed). This is a common gap in contracts drafted without India-specific legal input.
Provident Fund (PF)
Employees earning below INR 15,000 per month in basic salary must be enrolled in the Employees’ Provident Fund (EPF). Both employer and employee contribute 12% of basic wages. Most Indian employers extend PF to all employees regardless of salary level as a standard practice. PF registration is required before the first employee joins.
Employee State Insurance (ESI)
ESI applies to employees earning up to INR 21,000 per month gross, providing health and insurance coverage. Employer contribution is 3.25%; employee contribution is 0.75%. Applicable once the company reaches 10 employees in most states.
TDS on Salaries
Your Indian entity must deduct Tax Deducted at Source (TDS) from employee salaries monthly under Section 192 of the Income Tax Act and remit it to the government. Quarterly TDS returns (Form 24Q) must be filed, and annual Form 16 certificates issued to employees. This is one of the most frequently missed compliance items in new subsidiaries.
Professional Tax
A state-level tax deducted from employee salaries. Rates vary by state — in Maharashtra (Pune and Mumbai), the maximum is INR 2,500 per employee per year. Simple to manage but requires registration.
Gratuity
Employees who complete five or more years of continuous service are entitled to a gratuity payment on leaving — calculated at 15 days of last drawn wages per completed year of service. This is a statutory obligation, not discretionary. Companies should account for gratuity liability from the moment they start hiring.
Hiring Indian Nationals vs NRIs vs Expats
If your UAE company plans to post UAE-based staff to India temporarily, there are additional considerations — visa requirements, income tax treatment under the India-UAE DTAA, and social security implications. NRIs returning to India are typically straightforward to hire as Indian residents. Non-Indian expats posted to India require an Employment Visa and their India-source income is taxable in India from day one.
Step 6: The India-UAE Double Tax Avoidance Agreement
The India-UAE DTAA has been in force since 1993 and is a key factor in structuring UAE-India business arrangements. Here is what matters in practice.
Dividend Withholding Tax
When your Indian subsidiary pays a dividend to your UAE parent, India levies a withholding tax. Under the DTAA, this is subject to a concessional rate compared to the domestic withholding tax rate. Your Indian CA and UAE tax adviser should coordinate to ensure the correct rate is applied and that the required documentation (Tax Residency Certificate from the UAE, Form 10F) is in place to claim treaty benefits.
Interest on Inter-Company Loans
If your UAE parent lends money to the Indian subsidiary (rather than investing as equity), interest payments from India to the UAE are subject to withholding tax. The DTAA provides for a reduced rate on such interest. However, inter-company loans must be structured carefully under FEMA’s External Commercial Borrowings (ECB) framework — not all loan structures are permitted, and interest rates must be within RBI-prescribed limits.
Fees for Technical Services and Royalties
If your UAE parent provides technical services or licenses IP to the Indian subsidiary, payments classified as Fees for Technical Services (FTS) or royalties attract Indian withholding tax. The DTAA rate is lower than the domestic rate but still applies. Getting the classification right — and ensuring the correct rate is withheld — matters for both Indian compliance and claiming credit in the UAE.
Permanent Establishment Risk
If employees or agents of your UAE parent operate in India and habitually conclude contracts on behalf of the UAE entity, this may create a Permanent Establishment (PE) of the UAE company in India, exposing the UAE entity’s profits to Indian corporate tax. Properly structuring the relationship between the UAE parent and the Indian subsidiary — ensuring the Indian entity acts independently and invoices for its services — is essential to managing PE risk.
Principal Purpose Test
Post-2017 amendments to India’s tax treaties (following OECD BEPS recommendations) introduced a Principal Purpose Test (PPT) clause in many Indian DTAAs, including the India-UAE treaty. This means treaty benefits can be denied if the principal purpose of an arrangement is to obtain those benefits. Structuring UAE-India arrangements with genuine commercial substance — not purely for tax optimisation — is increasingly important.
Common Mistakes UAE Companies Make When Setting Up in India
1. Apostille confusion. The UAE joined the Hague Apostille Convention in 2021, but many businesses (and even some service providers) still follow the old consular legalisation process. Using the correct apostille process saves time.
2. Free zone entity complications. UAE free zone companies are generally eligible to invest in India under the automatic FDI route, but the specific free zone authority, entity type, and documentation requirements need to be verified. Not all free zone entity types are treated identically.
3. Undercapitalising and funding through loans. Bringing in minimal share capital and then funding Indian operations through inter-company loans creates ECB compliance issues under FEMA. Equity is simpler for most early-stage subsidiaries.
4. Missing the FC-GPR deadline. 30 days from share allotment. No exceptions. Missing it means a compounding application to the RBI.
5. GST on inter-company invoices. UAE-to-India service companies frequently get this wrong — charging 18% GST on invoices to the UAE parent when the supply should be classified as a zero-rated export. The difference is significant both for cash flow and for compliance.
6. Transfer pricing without documentation. UAE-India setups often involve significant inter-company transactions. Documenting your pricing methodology in a Transfer Pricing policy before transactions begin is far easier than doing it retrospectively.
7. Ignoring the DTAA formalities. To claim reduced withholding tax rates under the India-UAE DTAA, the UAE parent must provide a valid Tax Residency Certificate (TRC) and Form 10F to the Indian subsidiary each year. Missing this means the Indian subsidiary must withhold at the higher domestic rate.
8. Not accounting for gratuity from day one. Gratuity becomes payable after five years of employment. Companies that do not provision for it early face a significant unexpected liability later.
Realistic Timeline: UAE Company to First Hire in India
| Milestone | Typical Timeframe |
|---|---|
| Entity structure decision and document preparation | 1–2 weeks |
| UAE document apostille | 3–7 working days |
| MCA incorporation process | 2–3 weeks |
| Bank account opening | 1–2 weeks after incorporation |
| Capital remittance (SWIFT from UAE) and FC-GPR | 1–2 weeks after bank account |
| GST registration | 1–2 weeks |
| PF / ESI / Professional Tax registration | 1–2 weeks |
| Total: first hire ready | 8–14 weeks from start |
EOR can compress hiring to 2–3 weeks if you need staff on the ground while incorporation is in progress.
Choosing the Right CA Firm in India
Your choice of Indian CA firm matters more than most UAE businesses realise at the outset. A few things to prioritise:
FEMA and cross-border experience. FC-GPR filings, FLA returns, ECB compliance, and DTAA application are specialist areas. A CA firm that handles only domestic Indian businesses will miss nuances that matter for foreign subsidiaries.
Sector experience. IT and engineering subsidiaries, trading companies, and construction businesses each have different GST treatment, different transfer pricing profiles, and different payroll structures. Choose a firm that works regularly in your sector.
Ongoing relationship. Monthly accounting, GST filings, payroll processing, annual audit, ROC filings, and RBI compliance are all ongoing. The setup is the beginning of the relationship, not the end.
Communication. Your UAE team needs an Indian CA who communicates clearly in English, responds promptly, and can explain Indian compliance requirements in business terms — not just in regulatory jargon.
Summary: India Entry Checklist for UAE Companies
- Confirm entity type (Pvt Ltd subsidiary is right for most UAE businesses)
- Verify FDI route (automatic for most sectors)
- Apostille UAE parent company documents (via UAE authority — Ministry of Foreign Affairs or free zone authority)
- Appoint minimum two directors (one India-resident mandatory)
- File SPICe+ incorporation with MCA
- Open Indian corporate bank account
- Remit capital via SWIFT from UAE; allot shares
- File FC-GPR with RBI within 30 days of share allotment
- Register for GST, PAN, TAN, Professional Tax
- Register for PF and ESI before first hire
- Establish accounting system (Tally or Zoho Books)
- Obtain UAE Tax Residency Certificate annually for DTAA benefits
- Document transfer pricing methodology before inter-company transactions begin
- File annual FLA Return by 15 July each year
Setting up an Indian entity from the UAE is a well-trodden path — thousands of UAE businesses have done it successfully. The process is manageable with the right preparation and the right professional support on the India side. The companies that do it well treat the compliance infrastructure as a foundation, not a formality — because getting it right from the start is significantly less expensive than fixing it later.
KRPR & Associates is a Chartered Accountant firm based in Pune, India. We assist UAE and other foreign companies with company incorporation, FEMA and RBI compliance, GST and accounting setup, and HR and payroll services.