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Business, Compliance

A UAE company run from India can fail both tests

The treaty asks where the company is managed and controlled. Indian law asks where the key decisions are made. The Rs 50 crore circular answers only the second question, and only for a year under the old Act.

You incorporated in the UAE, but the contracts, the bank tokens and the real decisions sit in India. You have been told a Rs 50 crore turnover figure means the company cannot be taxed as an Indian resident. You want that checked before a dividend or a treaty claim.
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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

Two tests, and they are not the same. Under Article 4 of the India-UAE treaty, a company is a UAE resident only if it is incorporated in the UAE and managed and controlled wholly in the UAE. Under section 6(3) of the Income-tax Act, 1961, a company is resident in India if it is an Indian company or its place of effective management is in India. That phrase means where the key management and commercial decisions for the business as a whole are in substance made. Circular No. 8 of 2017 says section 6(3)(ii) shall not apply to a company with turnover or gross receipts of Rs 50 crore or less in a financial year. The circular does not change the treaty test. The old company test of control and management was replaced, for companies, by place of effective management.

Decisions made in India, licence in the UAE?

Tell us who signs and where they sit. A practising CA will separate the treaty test from the Indian residence test. No obligation.

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Related situations

The treaty test does not use Rs 50 crore

Article 4(1)(b) says a company is a resident of the UAE, for this treaty, if it is incorporated in the UAE and managed and controlled wholly in the UAE. Both parts are required.

If the real control is in India, the company can fail that sentence even when the licence is Emirati. A treaty rate on an Indian invoice, and a Form 41 claim, both assume the company is a UAE resident under that article. A turnover figure from an Indian circular is not part of the article.

The Indian test for a company

(3) of the Income-tax Act, 1961 says a company is resident in India if it is an Indian company, or if its place of effective management in that year is in India. The Explanation defines that place as the place where key management and commercial decisions necessary for the business as a whole are, in substance, made.

Finance Act, 2015 replaced the older company wording. For a company, do not apply a test of 'control and management wholly in India'. That older company wording is gone. (2) still uses control and management, but for a Hindu undivided family, a firm, or another association of persons, not for a company.

Circular No. 6 of 2017 is the guiding note on how to find that place. It is fact-specific. A board meeting held in the UAE for the sake of the minutes, while the decisions are made in India, is the pattern the note is aimed at.

What the Rs 50 crore circular does, and what it does not

Circular No. 8 of 2017 says clause (ii) of section 6(3) shall not apply to a company with turnover or gross receipts of Rs 50 crore or less in the financial year. That is a real statement. It is about the Indian residence clause. It is not a statement that the company is a UAE treaty resident, and it is not a statement that India cannot tax income that arises in India anyway.

Circular 25 of 2017 discusses regional headquarters. It does not withdraw the Rs 50 crore sentence. Some commentaries say the company test sits in a different subsection of section 6 under the Income-tax Act, 2025. We do not state that number. For a year governed by the 2025 Act, confirm the foreign-company test before you rely on a 2017 circular. The department's transition note says an old circular stays in force only so far as it does not conflict with the new Act.

If you are the Indian resident who owns the shares, the overseas-investment report is a separate filing. Residence of the company does not cancel it.

What's involved

What the CA actually does

  1. 1

    We separate the treaty test from the Indian test

    Managed and controlled wholly in the UAE is the treaty sentence. Place of effective management is the Indian sentence.

  2. 2

    We apply the Rs 50 crore circular only where it is written

    Turnover or gross receipts of Rs 50 crore or less, Indian residence clause, year under the 1961 Act. Not the treaty.

  3. 3

    We look at where decisions are made

    Who approves contracts, who moves the bank, and where those people sit. The licence address is not the answer.

What to have ready

Documents you'll typically need

  • Where the directors actually decide, and any board minutes
  • Who operates the UAE bank account
  • Turnover or gross receipts of the UAE company for the year
  • The Indian invoices, if a treaty rate is being claimed

References on this page

  • India-UAE DTAA Article 4(1)(b). https://www.incometaxindia.gov.in/w/uae-comprehensive-agreements-1
  • Section 6(3), Income-tax Act, 1961, and the Explanation defining place of effective management. https://indiankanoon.org/doc/191105/
  • CBDT Circular No. 8 of 2017, 23 February 2017: section 6(3)(ii) shall not apply where turnover or gross receipts are Rs 50 crore or less. https://upload.indiacode.nic.in/showfile?actid=AC_CEN_2_2_00039_196143_1524045010860&filename=ita-circulars-section-6-circular-no-8-2017-dated-23-2-2017.pdf&type=circular
  • CBDT Circular No. 6 of 2017, 24 January 2017: guiding principles for place of effective management. https://upload.indiacode.nic.in/showfile?actid=AC_CEN_2_2_00039_196143_1524045010860&filename=ita-circulars-section-6-circular-no-6-2017-dated-24-1-2017.pdf&type=circular
  • CBDT Circular No. 25 of 2017, 23 October 2017: regional-headquarter clarification. It repeats the Rs 50 crore sentence and does not withdraw it. https://www.incometaxindia.gov.in/documents/d/guest/circular25_2017-pdf
  • Income Tax Department, FAQs on interplay and transition: an old circular continues only so far as it does not conflict with the 2025 Act (section 536(2)(j)). https://www.incometaxindia.gov.in/documents/81799/11848482/Updated-FQAs-on-Interplay%26Transitions.pdf

Frequently asked questions

Common questions

The circular switches off section 6(3)(ii) of the 1961 Act at that size. It does not make the company a UAE resident under Article 4, which still requires management and control wholly in the UAE. Income that arises in India can still be taxed in India.

No. For a company, section 6(3) uses place of effective management. Section 6(2)'s control-and-management test is for a firm, a Hindu undivided family, or another association, not for a company.

We do not say that it does. Confirm the foreign-company residence test for a year under the 2025 Act before you rely on Circular 8 of 2017.

Related

If this matched your situation, these go further

A UAE company needs Form 41 and a tax residency certificateYou live in India and own a UAE company. RBI still wants a reportWhen a UAE company has a taxable presence in India

Decisions made in India, licence in the UAE?

Tell us who signs and where they sit. A practising CA will separate the treaty test from the Indian residence test. No obligation.

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