An Indian company with a UAE subsidiary has four tax and regulatory points to manage on the India side. The first is where the subsidiary is managed, because a foreign company whose place of effective management is in India is resident in India. The second is transfer pricing on the transactions between the two companies. The third is GST on the services that flow between them. The fourth is the FEMA reporting that an overseas investment creates. UAE Corporate Tax and free zone status are separate questions, decided under UAE law, and they do not settle the Indian position.
Risk 1: where the subsidiary is managed
Under section 6(10) of the Income-tax Act, 2025, which came into force on 1 April 2026, a company is resident in India in a tax year if it is an Indian company or if its place of effective management is in India in that tax year. The same sub-section defines the place of effective management as the place where key management and commercial decisions necessary for the conduct of the company's business as a whole are, in substance, made. The Income-tax Act, 1961 contained the same test.
Because the test turns on where decisions are made in substance, keep a clear record for the UAE subsidiary of where its board meets, who takes its key management and commercial decisions, and where those decisions are taken. Board minutes should record decisions as they are made.
Risk 2: transfer pricing
Transactions between an Indian parent and its foreign subsidiary are international transactions. Under section 161(1) of the Income-tax Act, 2025, income arising from an international transaction is determined having regard to the arm's length price. The accountant's report on these transactions is furnished under section 172 in Form No. 48 of the Income-tax Rules, 2026, which corresponds to Form 3CEB under the 1962 Rules. The UAE has its own rule: under Article 34 of Federal Decree-Law No. 47 of 2022, transactions between related parties must meet the arm's length standard when taxable income is determined. Both countries therefore look at the same transactions.
Flows between the two companies to list and document include:
- Services: management, technology, back-office or sales support provided by one company to the other.
- Funding: loans from the parent, and the interest on them.
- People: staff seconded or shared between the two.
- Intangibles: use of the group's brand, software or know-how.
Include flows for which nothing is charged. Put an inter-company agreement in place for each flow, price it with support, and invoice it as agreed.
Risk 3: GST on the flows between the two
- Services from the Indian parent to the UAE subsidiary can be exports of services, zero-rated, if all five conditions of section 2(6) of the IGST Act are met: the supplier is located in India; the recipient is located outside India; the place of supply is outside India; payment is received in convertible foreign exchange, or in Indian rupees wherever permitted by RBI; and the two are not merely establishments of a distinct person. CBIC Circular No. 161/17/2021-GST clarifies that a company incorporated in India and a body corporate incorporated outside India are separate persons, so the last condition does not stop supplies between them qualifying. The export is made under an LUT or on payment of IGST.
- Services from the UAE subsidiary to the Indian parent, where the place of supply is in India, are imports of services. The parent pays IGST on them under reverse charge, under Serial No. 1 of Notification No. 10/2017-Integrated Tax (Rate).
The Finance Act, 2026 changed the place of supply rule for intermediary services. If any service between the two companies is an intermediary service, see GST on export of services after the Finance Act 2026 intermediary change.
Risk 4: FEMA reporting on the investment
The investment in the UAE subsidiary is an overseas direct investment under FEMA. Setting it up, investing further, lending to it, guaranteeing its obligations and disinvesting each have reporting requirements through the authorised dealer bank. There is also an Annual Performance Report on the subsidiary, due by 31 December each year. See ODI after setting up a UAE or Singapore subsidiary.
On the UAE side, briefly
For context: UAE Corporate Tax, under Federal Decree-Law No. 47 of 2022, applies to tax periods commencing on or after 1 June 2023 (Article 69). Under Cabinet Decision No. 116 of 2022, taxable income up to AED 375,000 is taxed at 0%, and taxable income above it at 9%. Under Articles 3 and 18 of the Decree-Law, a qualifying free zone person is taxed at 0% on qualifying income, if it meets conditions that include maintaining adequate substance in the UAE and complying with Articles 34 and 55, on the arm's length standard and transfer pricing documentation.
A short annual review
- Where were the subsidiary's key management and commercial decisions made this year, and is that recorded?
- Do all inter-company flows have an agreement, a price and invoices?
- Has the accountant's report in Form No. 48 been obtained and furnished for the year?
- Are GST positions on group services consistent with the invoices and returns?
- Are all FEMA filings for the investment up to date, including the Annual Performance Report?
Where this fits
Running the books for both companies is covered in running Zoho Books for a UAE entity and an Indian entity.
Wissen Solutions supports Indian groups with UAE subsidiaries on Indian tax, GST and FEMA compliance through our GST, income tax and TDS return filing services.
Sources (checked 26 October 2026)
- Income Tax Department: Section 6, Income-tax Act, 2025: sub-section (10), residence of a company and place of effective management
- Income Tax Department: Income-tax Act, 2025 comes into force from 1 April 2026
- Income Tax Department: Section 161, Income-tax Act, 2025: income from international transactions determined having regard to the arm's length price
- Income Tax Department: Form 48 FAQs: report under section 172; Form 48 corresponds to Form 3CEB
- UAE Ministry of Finance: Federal Decree-Law No. 47 of 2022 and its amendments: Articles 3, 18, 34 and 55
- UAE Ministry of Finance: Federal Decree-Law No. 47 of 2022 (as issued): Article 69, tax periods commencing on or after 1 June 2023
- UAE Legislation: Cabinet Decision No. 116 of 2022: AED 375,000 threshold
- CBIC Circular No. 161/17/2021-GST dated 20.09.2021: condition (v) of section 2(6) of the IGST Act
- CBIC Circular No. 202/14/2023-GST dated 27.10.2023: text of condition (iv) of section 2(6)
- Notification No. 10/2017-Integrated Tax (Rate): Serial No. 1, reverse charge on services from a non-taxable territory