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Business, Compliance

Why an Indian customer still deducts tax on a UAE invoice

The India-UAE treaty has no article on fees for technical services. That does not mean every invoice is free of Indian tax.

Your UAE company billed an Indian customer for design, consulting, management or technical work. The treaty has no fees-for-technical-services clause, so you expected no Indian tax. The customer deducted tax anyway, or it is refusing to pay until you produce a stack of forms.
Last reviewed: 28 October 20266 min readBy Vipul Sharma, Founder · Reviewed by Preetesh Maloo, CA

Confirm this with a practising CA before you act. The answer depends on the year and your documents.

The short answer

The Income Tax Department's text of the India-UAE treaty has no fees-for-technical-services article. Business profits of a UAE enterprise are taxable in India only if the enterprise has a permanent establishment in India, and then only the profits attributable to it (Article 7). A service permanent establishment needs more than nine months on the same or a connected project in any twelve months (Article 5(2)(i)). A payment for the use of a patent, design, secret process or commercial experience can still be a royalty, capped at 10 per cent if the recipient is the (Article 12). The payer's duty to withhold sits under section 195 (old Act). We do not state a new section number for that duty.

Indian customer deducted tax on a UAE invoice?

Tell us what the contract actually sells. A practising CA will say whether it is a service, a royalty, or a permanent-establishment question. No obligation.

Senior CA who specialises in NRI-owned Indian companies · we handle the regulator, you stay abroad

What the treaty does not contain

Many Indian treaties have an article that taxes fees for technical services even when the foreign firm has no office in India. The India-UAE treaty does not. The articles run through business profits, royalties, and the rest. There is no fees-for-technical-services article to apply.

So a fee for services in the ordinary course of the UAE company's business is looked at as business profit, unless it is actually something the treaty names, such as a royalty. Business profit is taxable in India only to the extent it is attributable to a permanent establishment in India.

The nine-month service test

Article 5(2)(i) includes a permanent establishment where a UAE enterprise furnishes services, including consultancy, through employees or other personnel in India, for the same project or a connected project, for more than nine months in total within any twelve-month period.

Nine months or less on that test does not, by itself, create this kind of permanent establishment. It also does not answer the fixed-place test or the agent test. Those are on the permanent establishment page. A cost-plus Indian subsidiary is a different pattern again, covered on the subsidiary page.

Royalty is still royalty

Article 12 taxes royalties. The definition includes a payment for the use of, or the right to use, a copyright, patent, trademark, design, model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. If the recipient is the , the Indian tax is capped at 10 per cent of the gross amount.

A report that transfers the firm's know-how can be argued as a royalty. A fee for the firm's own staff to do the work is more often a service. The label on the invoice does not decide it. Someone has to read the contract.

If the payer withholds as if a fees-for-technical-services article existed, the UAE company has a cash-flow problem even when the treaty rate is nil. The papers the payer usually wants are the company certificate and Form 41, plus a short note of why there is no permanent establishment. Excess tax already deducted is recovered through the Indian return, not by rewriting the invoice.

If a person invoices in their own name

Article 14, not Article 7, covers professional services of an individual. India may tax that income if the person has a fixed base in India, or if their stay in India amounts to 183 days or more in the relevant Indian previous year. A company invoice and a personal invoice are different tests. Do not use the nine-month company test for a person billing in their own name.

What's involved

What the CA actually does

  1. 1

    We read the contract against the articles

    We separate a service fee from a royalty, and we check the nine-month count only where Article 5(2)(i) is the question.

  2. 2

    We prepare the pack the payer asked for

    Certificate, or for the right year, and a note on permanent establishment. We do not promise a nil deduction.

  3. 3

    We deal with tax already deducted

    If the deduction does not match the treaty position, a practising CA deals with it in the Indian return for that year.

What to have ready

Documents you'll typically need

  • The contract and a sample invoice
  • How long people have worked on the Indian project, and whether they were in India
  • The company tax residency certificate, if you have it

References on this page

  • India-UAE DTAA, Income Tax Department text: no fees-for-technical-services article; Article 5(2)(i) service PE over nine months; Article 7 business profits; Article 12 royalties at 10 per cent. https://www.incometaxindia.gov.in/w/uae-comprehensive-agreements-1
  • Article 12(3) defines royalties to include payments for the use of a patent, design, secret formula or process, or for information concerning industrial, commercial or scientific experience

Frequently asked questions

Common questions

No. It means there is no fees-for-technical-services article to apply. Business profits are taxable in India if there is a permanent establishment. Royalties can still be taxed, at up to 10 per cent when the recipient is the beneficial owner. The payer may also withhold while the papers are missing.

Article 5(2)(i) asks for more than nine months in any twelve, on the same or a connected project. Four months does not meet that limb. A fixed place or an agent who concludes contracts can still be a permanent establishment. Check those separately.

Section 195 of the Income-tax Act, 1961, the old Act. We do not state the new Act's section number. Commentaries disagree on it.

The exceptions that change the answer

Where the general rule stops applying to you

Every rule below has a carve-out, a cut-off date or a condition that flips the answer. These are the ones that decide real cases.

Tax on royalty and fees for technical services paid to non-residents

Right now: 20% plus surcharge and cess

Where it works differently

A treaty applies and is more beneficial
The treaty rate governs, commonly 10-15%. The doubling of the domestic rate made treaty claims worth far more.
s.90(2). Requires TRC and Form 10F (Form 41 from 1 Apr 2026).
The India-US or India-UK treaty applies to FTS
The make-available test can remove the income from Indian tax entirely, not merely reduce the rate.
Article 12 of both treaties.
Claiming the treaty rate
A foreign company must file an Indian return to take the DTAA rate over s.115A.
Condition attached to the FA 2023 amendment.

Commonly got wrong

  • Royalty and FTS to non-residents are taxed at 10%. Doubled to 20% from 1 April 2023.20% plus surcharge and cess under domestic law from 1 April 2023, or the treaty rate (often 10-15%) if you hold a TRC and file the return.

Indian customer deducted tax on a UAE invoice?

Tell us what the contract actually sells. A practising CA will say whether it is a service, a royalty, or a permanent-establishment question. No obligation.

No card, no obligation. All certification and filing work is handled by ICAI-registered practising Chartered Accountants.