24 Oct 2026Updated 24 October 2026 · By Regi Tom Antony, FCA, MBA (Australia), ACMA (UK), CGMA (USA), CISA (USA)
A client came to see me last month. After eighteen years in Dubai he had moved home to Kochi, but his free zone trading company would carry on. "The company pays its tax in the UAE, I live here, and India has nothing to do with it. Correct?"
Not quite. If the key decisions of that Dubai company are now being taken by you in India, India can treat the company itself as an Indian resident and tax its worldwide income. Where the company is incorporated matters less than where it is actually run.
The place of effective management test
Under the Income-tax Act, 2025, section 6(10) says a company is resident in India in a tax year if it is an Indian company, or if its place of effective management in that year is in India. The Act describes place of effective management as the place where the key management and commercial decisions necessary for the conduct of the company's business as a whole are, in substance, made. This carries forward the old section 6(3) of the 1961 Act.
The CBDT's 2017 guidelines (Circular 6 of 2017) explain how officers approach this. They first ask whether the company is engaged in an active business outside India. Broadly, that means passive income such as interest, dividends and royalties is not more than half of its total income, and less than half of its assets, employees and payroll are in India. For such a company, the place of effective management is presumed to be outside India if the majority of board meetings are held outside India. That presumption weakens if the board in practice approves what someone in India has already decided.
For other companies, officers look at where the people who really decide meet and decide, where the head office is, and who controls the bank and contracts. Emails and WhatsApp messages are evidence.
Under the old law, CBDT also said these guidelines would not apply to companies with turnover of ₹50 crore or less (Circular 8 of 2017). That was administrative relief under the 1961 Act, not a change in the law, and I would not plan on a smaller company being outside the test.
The UAE side
The UAE charges corporate tax at 9% on taxable income above AED 375,000, and 0% up to that amount. A free zone company that qualifies as a Qualifying Free Zone Person pays 0% on its qualifying income. To qualify, it must have 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, comply with transfer pricing rules, and not have elected for the standard regime. If it fails a condition, it falls into the 9% regime for that year and the following four.
Small Business Relief, for businesses with revenue up to AED 3 million, was due to end with tax periods ending on 31 December 2026. In August 2026 the UAE Ministry of Finance extended it, through Ministerial Decision No. 131 of 2026, to tax periods ending on or before 31 December 2029. Qualifying Free Zone Persons and members of large multinational groups still cannot use it.
A company whose real management has moved to Kochi may also struggle to show adequate substance in Dubai. The same facts hurt you on both sides.
When both countries claim the company
A Dubai-incorporated company is resident in the UAE. If its place of effective management is in India, India also treats it as resident. The India–UAE treaty's tie-breaker for companies, Article 4(4), deems it resident where its place of effective management is situated; the Multilateral Instrument has not replaced that rule for this treaty. If the real decisions are made in India, the treaty will not rescue you.
The result can be Indian tax on the company's global profits at the rate for foreign companies, with credit only for the UAE tax actually paid.
A story from the desk
Take Suresh (not his real name). He set up a Dubai free zone company in 2016, supplying electrical components to Gulf contractors. In 2025 he moved back to Kerala to care for his parents. He kept a manager in Dubai, but the manager emails him every supplier contract, every credit decision and every hire. Suresh approves them from his home office. The company holds its board meetings by video, with Suresh joining from India.
On those facts I told Suresh his company's place of effective management is very likely in India. We are changing how it actually works. A general manager in Dubai now has real authority within an approved budget, board meetings are held in Dubai with Suresh travelling for the important ones, and a finance office there runs the books and the bank, the kind of Gulf finance function our Virtual CFO services team supports. Suresh still sets strategy as shareholder; the commercial decisions now sit in Dubai.
The FEMA and reporting side
Two more points catch people out. Suresh made his investment while a non-resident, so he may continue to hold it after returning. But a resident individual who sets up a new Dubai company makes an overseas direct investment under the Foreign Exchange Management (Overseas Investment) Rules, 2022. That has to go through the Liberalised Remittance Scheme, into an operating company not engaged in financial services, and the company should not have a subsidiary or step-down subsidiary that the individual controls. The remittance also attracts TCS of 20% on amounts above ₹10 lakh in a financial year, which you can claim as credit. I have explained this in TCS on LRS remittances.
As a resident, you must also disclose the foreign shares and any foreign bank accounts in Schedule FA of your return; missing this invites Black Money Act penalties.
People often ask me whether holding board meetings in Dubai is enough. It helps, but only if the board genuinely decides. Others ask whether a mainland company is safer than a free zone one; the test does not care which licence you hold. If you hold Indian investments through a company abroad, see treaty structures after Tiger Global.
If you want to test your own structure against this, write to us at letstalk@rtaandassociates.com.
For how this fits with FEMA, treaties and GST more broadly, see our guide to cross-border tax and FEMA advisory.
Related guides
- Cross-border tax and FEMA advisory: the full guide
- Is a tax residency certificate still enough? Treaty structures after Tiger Global
- GIFT City IFSC for NRIs and Gulf families: what it offers and what to check
- TCS on money you send abroad under LRS, from 1 April 2026
Regi Tom Antony, FCA, MBA (Australia), ACMA (UK), CGMA (USA), CISA (USA)
Regi Tom Antony & Associates, Chartered Accountants, Kochi
This is general information based on the law as at 24 October 2026, not advice for your particular situation.