India and UAE Double Tax Treaty | All You Need to Know

India and the UAE signed a comprehensive UAE Double Tax Treaty in the early 1990s to stop the same income being taxed in both countries and to support investment. The agreement now stays beside newer tools like the Multilateral Instrument (MLI) and the India–UAE CEPA trade pact, so it still works, but in a more complex landscape.

For Indian residents with income in the UAE, or UAE residents who earn in India, the treaty decides which country may tax each type of income and how the other country must give relief. The result, when used correctly, is a single net tax on that income rather than two overlapping charges.

Basic Structure of The India-UAE Double Tax Treaty

Who does the treaty apply to

The treaty applies to people who are residents of India, the UAE, or both under each country’s domestic law. Where a person or company meets both residency tests, the tie-breaker rules look at factors such as place of effective management so only one state treats that person as a resident for treaty purposes.

Taxes and income covered

On the Indian side, the agreement covers income tax, including any surtax or surcharge that attaches to it.

On the UAE side, it covers income or capital taxes that apply in the relevant emirate.

The treaty distributes taxing rights on income such as:

• Business profits linked to a permanent establishment
• Dividends, interest and royalties
• Income from employment, directors’ fees and independent personal services
• Income from immovable property and gains on certain assets

How double taxation is avoided

If India has taxing rights, and the same income is also taxed in the UAE. However, India must allow a credit for the UAE tax, subject to limits in domestic law. The UAE, which does not levy federal personal income tax, generally uses an exemption rather than a credit where its own rules give tax.

Key Treaty Rules for Common Income Types

Business profits and permanent establishment

A UAE resident company is taxed in India on business profits only if it carries on business in India through a permanent establishment, such as a fixed place of business or a dependent agent. If there is no permanent establishment, India should not tax the core business profits even when customers are in India.

The permanent establishment tests now take into account the MLI, which tightens rules around agency arrangements and commissionaire structures that shift profits without real substance.

Dividends, interest and royalties

For portfolio dividends paid by an Indian company to a UAE resident, the treaty caps Indian tax at a limited rate, with the exact number set in the main text and later protocols.

Practical guides often quote treaty withholding of about 10 percent on dividends and 12.5 per cent on interest in many common cases, subject to beneficial ownership and documentation.

Royalties and fees for technical services are usually taxed in India at a treaty rate that is lower than the default domestic rate, with the UAE giving relief if any of its own taxes apply.

Employment, directors’ fees and professional income

Salaries are generally taxed in the country where the employment is actually exercised, with short-stay and employer-location tests that sometimes keep tax in the home country.

Directors’ fees may be taxed in the state where the paying company is resident, which often means India when the board seat is in an Indian company.

Independent professional income can be taxed where the person has a fixed base or spends significant time in that state. This becomes important for consultants who split time between India and the UAE.

Capital gains and property income

Income from immovable property, such as rent on a building in India owned by a UAE resident, is generally taxed where the property sits.

For capital gains, the treaty follows source-based rules for shares in Indian companies and rights linked to Indian real estate, while leaving room for residence-based taxation on other assets.

Interaction With CEPA and New Global Tax Rules

Trade growth under CEPA

The India-UAE Comprehensive Economic Partnership Agreement (CEPA) has sharply expanded trade; official data show bilateral trade in goods reaching about USD 100 billion in FY 2025 after the deal took effect in 2022. As firms use CEPA tariff cuts, cross-border service and royalty flows also grow, so treaty rules on permanent establishments, withholding and credit calculation now affect more transactions.

Minimum tax and information exchange

Both countries apply the OECD MLI to this treaty, which adds anti-abuse tests such as the Principal Purpose Test and tightens some technical rules. They have also updated the information-exchange article so tax authorities can share data that is “foreseeably relevant” to the administration of taxes covered by the treaty.

For large multinationals, these moves sit next to global minimum tax initiatives. The UAE has announced a 15 per cent domestic top-up tax on in-scope multinationals from 2025, aligning with Pillar Two.

The double tax treaty does not override those minimum tax rules, but still guides which jurisdiction gets the base corporate tax and how credits should be calculated.

Practical Steps for Using the Treaty

1. Confirm residency and beneficial ownership

Businesses first need to confirm the treaty residence of each party and collect tax residency certificates on time. For passive income such as dividends and interest, beneficial ownership tests matter, so structures that route payments through shell entities without real control face a higher challenge.

2. Match contracts to treaty articles

Cross-border contracts should state which services are supplied, where work will be carried out and how risk sits between parties. That detail helps link each payment to the right treaty article, for example, business profits, royalties or technical service fees, and supports the claimed withholding rate.

3. Keep evidence and claim credits carefully

Indian residents who pay tax in the UAE or face UAE withholding should keep:

• UAE tax payment proofs and certificates
• Working papers that show how much of the income is taxable in India

Those papers support foreign tax credit claims under Indian rules that work alongside the treaty and its MLI changes.

How Arnifi Helps Businesses Use the Treaty

Many boards find that the legal text of the India-UAE double taxation agreement is hard to connect with daily transactions. Arnifi’s professional accounting and bookkeeping services in the UAE map income streams, entity charts and contract flows against the treaty, the MLI and domestic laws in both countries so that each item of income has a clear home. 

Arnifi’s team then builds practical filing and documentation routines so tax relief is claimed correctly and the risk of disputes with either authority stays low over time.

FAQs

Q1. When did the India–UAE double tax treaty come into force?

The comprehensive treaty entered into force in 1993, replacing an earlier limited agreement, and has since been updated by protocols and the MLI.

Q2. Which taxes does the treaty cover for Indian residents?

It covers Indian income tax, including any surcharge or similar levy that attaches to it, for residents who qualify for treaty relief.

Q3. How are dividends and interest usually taxed under the treaty?

India keeps primary taxing rights but must cap withholding at agreed rates, widely cited as about 10 per cent for dividends and 12.5 per cent for interest in many cases.

Q4. Does the treaty affect the salary earned by an Indian working in the UAE?

Salary is typically taxed where the work is physically done, subject to short-stay exceptions, so many Indian employees working in the UAE rely on treaty rules plus domestic law.

Q5. Why should groups review structures after CEPA and Pillar Two?

Rising India–UAE trade under CEPA and the shift to global minimum tax increase cross-border payments and effective rate tests, so existing treaty-based plans may no longer give the expected result.