Your Dubai company is run from India: the POEM test, UAE tax residency and QFZP substance
A Dubai company whose key management and commercial decisions are, in substance, made in India is resident in India for that tax year under section 6(10) of the Income-tax Act 2025 (formerly section 6(3) of the 1961 Act), and a resident is taxed in India on worldwide income. A UAE tax residency certificate does not override that, because the India-UAE treaty also breaks a tie by place of effective management. The fix is real management in the UAE, evidenced every year.
This is the site’s one home for the POEM test and QFZP substance: the UAE seat comparison, UAE company formation and founder relocation to Dubai link here. The FEMA leg lives on LRS vs ODI for Indian founders.
Three tests, one set of facts
Three instruments ask where the company is actually run, each for its own purpose.
| Point | India: POEM under the Income-tax Act 2025 | UAE: residency and QFZP substance | India-UAE DTAA Article 4 tie-breaker |
|---|---|---|---|
| Instrument | Section 6(10) of the Income-tax Act 2025 (formerly section 6(3)), in force 1 April 2026; CBDT Circular 6/2017 of 24 January 2017 | Federal Decree-Law 47 of 2022 Articles 11, 12 and 18; Cabinet Decision 100 of 2023; Ministerial Decision 229 of 2025; Cabinet Decision 85 of 2022 | India-UAE DTAA, in force 22 September 1993, Article 4(1)(b) as substituted by the 2007 Protocol, Article 4(4), Article 29 |
| The test | Resident if POEM, where key management and commercial decisions for the business as a whole are in substance made, is in India; then taxed on worldwide income (section 5(1)) | Resident by incorporation, including a Free Zone Person (Article 11(3)(a)). A QFZP pays 0% on Qualifying Income and 9% on the rest while it keeps core income-generating activities, staff, assets and spend in a free zone | A UAE resident company is incorporated in the UAE and managed and controlled wholly there (Article 4(1)(b)); a dual resident is deemed resident where its place of effective management sits (Article 4(4)) |
| Thresholds and evidence | Active business outside India: passive income not more than 50% of total; under 50% of assets, employees and payroll in India; three-year average. Evidence: where the board in fact decides | Non-qualifying revenue not above the lower of 5% of revenue or AED 5,000,000; transfer pricing documentation; audited accounts. For a treaty TRC the FTA asks where applicable for a written statement showing effective management and control in the UAE | No numeric threshold: “wholly” is a facts test, and a domestic TRC does not override it (Cabinet Decision 85 of 2022 Article 6(1)) |
Per the Government of India press release of 24 January 2017 the POEM guidelines are not applied to companies with turnover or gross receipts of Rs 50 crore or less in a financial year; as at 25 September 2026 no CBDT restatement under the 2025 Act has been located.
The India test: POEM under the 2025 Act
The 2025 Act renumbered a rule in force since assessment year 2017-18: section 6(10)(a) makes a company resident if its POEM is in India, section 6(10)(b) defines POEM as the place where key management and commercial decisions for the business as a whole are, in substance, made, and section 5(1) brings in income accruing outside India. Circular 6/2017 splits companies in two. One with active business outside India, on the thresholds in Schedule A, is presumed to have POEM outside India if most board meetings are held outside India, unless the board stands aside and its powers are in fact exercised by the holding company or another person resident in India; following group policy on payroll, accounting, HR or IT is not standing aside. Passive income includes royalty, dividend, capital gains, interest and rent, so a pure holding company rarely counts as active. Every other company faces a two-stage test: who actually makes the key decisions, then where. A meeting place counts only if the board retains and exercises its authority; where it has de facto delegated to a shareholder, promoter or adviser and merely ratifies, POEM is where those persons decide. Residence is judged over the whole year, and an adverse finding needs a collegium of three Principal Commissioners or Commissioners after the company is heard.
The UAE test: residency by incorporation, and what a TRC proves
The UAE side is easier to pass and easier to misread. Under Article 11(3)(a) of Federal Decree-Law 47 of 2022 a juridical person incorporated under UAE legislation, including a Free Zone Person, is a Resident Person by incorporation, taxed on income from inside and outside the UAE (Article 12(1)). Cabinet Decision 85 of 2022 treats it as a Tax Resident entitled to apply for a Tax Residency Certificate. So a free zone company is resident on day one and can usually obtain a TRC. Article 6(1) of the same decision provides that where an International Agreement sets its own residency conditions, those apply. The India-UAE treaty does: a UAE resident company must be incorporated and managed and controlled wholly in the UAE (Article 4(1)(b), 2007 Protocol), and a dual resident is deemed resident where its POEM is situated (Article 4(4)). A domestic TRC answers neither question, and the FTA guide TPGTR1 (October 2024) reads effective management and control as Circular 6/2017 reads POEM, so one file serves both authorities. Article 29 denies treaty benefits where a main purpose of creating the entity was to obtain them, and Article 5(2)(a) makes a place of management a permanent establishment, so a treaty-resident UAE company can still have an Indian PE.
QFZP substance is not ESR: what changed in 2023
Cabinet Decision 98 of 2024, announced by the Ministry of Finance on 14 October 2024, limits the Economic Substance Regulations to financial years 2019 to 2022 and cancels notifications and reports for later years; liability for the earlier years remains. Substance moved into corporate tax, where it now decides a rate.
| Point | Economic Substance Regulations | QFZP substance under corporate tax |
|---|---|---|
| Instrument and period | Cabinet Decision 57 of 2020 as amended by Cabinet Decision 98 of 2024; financial years 2019 to 2022 only | Decree-Law 47 of 2022 Article 18; Cabinet Decision 100 of 2023 Article 8; Ministerial Decision 229 of 2025, effective 1 June 2023; every Tax Period |
| What it asks | Notification and report on relevant activities, cancelled for financial years ending after 31 December 2022 | Core income-generating activities in a free zone with adequate assets, qualified full-time employees and operating expenditure; outsourcing within a free zone allowed under adequate supervision |
| Consequence of failing | Historic penalties for the 2019 to 2022 years | QFZP status lost from the start of that Tax Period and for the next four; all Taxable Income then taxed at the standard rates, 0% to AED 375,000 and 9% above (Article 3(1); Cabinet Decision 116 of 2022) |
Qualifying Income is where the India-run company trips. Under Cabinet Decision 100 of 2023 it is income from other Free Zone Persons (except Excluded Activities), income from non-free-zone persons only for Qualifying Activities, qualifying intellectual property income and the de minimis; a domestic or foreign permanent establishment is taxed at 9%. Ministerial Decision 229 of 2025 (issued 28 August 2025, effective 1 June 2023) lists the Qualifying Activities, including headquarter services to related parties, defined as administering, overseeing and managing them: the functions that create POEM. Perform them in the free zone and one set of facts serves both tests.
Tax is paid and the return filed within nine months of the end of the Tax Period unless the FTA directs otherwise (Articles 48 and 53); for a calendar-year 2025 period that arithmetic gives 30 September 2026. Small Business Relief (revenue of AED 3,000,000 or less) runs on Ministerial Decision 73 of 2023 only for periods ending on or before 31 December 2026 and is never open to a QFZP. Mainland access under Executive Council Resolution 11 of 2025 is on the seat comparison.
Board hygiene: the sequence that keeps POEM where the structure says it is
Both regimes reward the same behaviour, so the work is one file.
- List the decisions that count and who takes them. Strategy, major transactions, senior appointments, dividends. If the Indian founder decides all of them from Noida, the rest of the file is decoration.
- Seat the decision-takers in the UAE. Cabinet Decision 85 of 2022 gives a natural person residency at 183 days in twelve consecutive months, or 90 days in twelve consecutive months as a residence-permit holder (or UAE or GCC national) with a permanent home, job or business there. See founder relocation to Dubai.
- Hold most board meetings in the UAE, with the board actually deciding. Minutes recording the options considered and the decision reached show authority exercised, not ratified.
- Ration circular resolutions. Frequency, the type of decision and where the signatories sit are weighed; strategic decisions passed round-robin from India point to India.
- Keep the Indian shareholder a shareholder. Matters reserved to shareholders do not create POEM, but guidance that limits the board’s real authority turns into effective management.
- Build the substance file against each Qualifying Activity. Lease and licence, the free zone employees performing the core activity, the operating expenditure, and supervision records for anything outsourced.
- Keep the whole-year record. Date the minutes, keep the travel record, and assemble the FTA’s written statement of effective management and control in advance.
- Calendar the annual obligations together. Return and payment, audited accounts, transfer pricing and the de minimis check in the UAE; Form FC and the APR in India. These recur every year.
On who signs what: Infinilex counsel qualified in India sign the Indian residence analysis, with Infinilex’s chartered accountant where a statute names that professional; Infinilex counsel qualified in the UAE sign the UAE residency and corporate tax position. The company and its directors sign their own board record, FEMA forms and TRC application. The wider structure is the subject of cross-border structuring; the holding-company choice before it is on Delaware vs UAE vs India.
Frequently asked questions
Will my Dubai company be taxed in India if I run it from India?
Yes, if its place of effective management is in India in that tax year. Section 6(10) of the Income-tax Act 2025, in force from 1 April 2026 and formerly section 6(3) of the 1961 Act, makes a company resident in India when key management and commercial decisions for the business as a whole are in substance made there, and section 5(1) then taxes its worldwide income.
Is a UAE tax residency certificate enough to stop my company being resident in India?
No. A UAE TRC confirms domestic residency under Cabinet Decision 85 of 2022, whose Article 6(1) says that where a treaty sets its own residency conditions, those conditions apply. Under the India-UAE DTAA a UAE resident company must be managed and controlled wholly in the UAE, and a dual resident is deemed resident where its place of effective management sits. The facts behind the certificate decide.
Does the UAE economic substance regulation still apply in 2026?
Not to current periods. On 14 October 2024 the UAE Ministry of Finance announced Cabinet Decision 98 of 2024, limiting the Economic Substance Regulations to financial years from 1 January 2019 to 31 December 2022 and cancelling ESR notifications and reports for later financial years; liability for the earlier years remains. Substance now sits in corporate tax, under Article 18 of Decree-Law 47 of 2022.
Is Small Business Relief still available for 2027?
Not on the current decision. Ministerial Decision 73 of 2023 sets the AED 3,000,000 revenue threshold only for Tax Periods starting on or after 1 June 2023 and ending on or before 31 December 2026, so a calendar-year 2027 period falls outside it unless a new Ministerial Decision extends the relief; as at 25 September 2026 we have not located one. The relief is never open to a Qualifying Free Zone Person.
What are the qualifying free zone person conditions for 0% UAE corporate tax?
Article 18 of Federal Decree-Law 47 of 2022 requires adequate substance in the UAE, Qualifying Income as defined by Cabinet Decision 100 of 2023, no election into the standard regime, and transfer pricing compliance. Ministerial Decision 229 of 2025 adds a de minimis of the lower of 5% of revenue or AED 5,000,000 and audited financial statements. Fail any condition and the status is lost for that Tax Period and the four that follow.
How does the India-UAE DTAA tie-breaker decide company residence?
Article 4(4) of the India-UAE DTAA deems a company resident in both States to be resident only where its place of effective management is situated. The treaty definition of a UAE resident company, substituted by the 2007 Protocol, already requires management and control wholly in the UAE, so a Dubai company run from India may fail that limb first. Article 29 denies benefits where a main purpose of the entity was to obtain them.
Running a UAE company from India today?
Tell us who takes the key decisions, where they sit, and what the company earns from whom. We will map the India residence exposure, the QFZP position and the treaty answer on your facts.
Further reading
DMCC vs ADGM vs IFZA vs mainland for Indian founders · UAE company formation for Indian founders · Founder relocation to Dubai · LRS vs ODI for Indian founders · Delaware vs UAE vs India holding company · VARA vs ADGM vs DIFC
This article is general information for founders, not advice on your company or its facts; nothing here concludes where any particular company is resident. The law is stated as at 25 September 2026, with Income-tax Act 2025 sections carrying their 1961 Act numbers in brackets. The 2025 Act renumbering and any CBDT restatement of the POEM guidance are re-checked every 90 days; the page is re-verified quarterly. Have the position reviewed on your own facts before you rely on it.