In recent years, Dubai has become a hotbed for Indian founders and technology entrepreneurs because of its zero personal income tax policy, business-friendly legislation, and luxury lifestyle. For Indian founders, who have to keep their tax outgo to the minimum, shifting to Dubai might be an appealing idea. But whether shifting to Dubai or not, does it decrease Indian income tax for Indian tech founders? The answer lies in multiple legal, financial, and residential factors.
Tax residency trumps location
The Indian Income Tax Act is not taxing a person simply because he is an Indian citizen—it is taxing him on residence. Even if the Indian founder moves to Dubai but is still a tax resident of India (in terms of time spent in India), they are taxed in India on their global income. For a person to be considered a non-resident Indian (NRI) for tax purposes, he/she must spend less than 120 days in India during a financial year, among other conditions. Creating a business in Dubai will not prevent tax liability unless the requirements of residency are met.
Income received in India remains taxable
Even if a founder is a non-resident, income earned in India—e.g., salary from an Indian business, dividends on Indian stock, or capital gain on Indian real estate—is nonetheless subject to taxation in India. Tech founders will frequently nonetheless hold equity in Indian startups, which may trigger taxable dividends or capital gains. Structuring this ownership so as to take it offshore can be technically challenging and even trigger tax liabilities along the way.
Offshore ownership is generating legal and compliance issues
Founders seeking to register their startups in Dubai to avoid Indian taxes would come under regulation oversight. Offshoring the parent entity (referred to as a "flip") would introduce capital gains tax into India and has RBI and FEMA ramifications. Additionally, authorities would apply General Anti-Avoidance Rules (GAAR) if they believe the structure is merely for tax evasion.
Double taxation avoidance treaties give only limited relief
India and the UAE have a Double Taxation Avoidance Agreement (DTAA), which prevents people from being taxed twice on the same income. But it does not relieve an Indian resident of paying tax in India. Where income is taxable in both nations, DTAA assists in ascertaining where main tax burden will be and if relief can be asserted. But it does not legalize tax avoidance by way of fictional relocation.
It's not a get-out-of-jail-free card
Moving to Dubai can reduce a founder's personal tax burdens on their earnings and spends overseas—specifically abroad—but it must be done within Indian tax law. Conditions for residency, source of income, and regulatory provisions are important considerations. Any migration to avoid tax without proper planning could lead to scrutiny from the Income Tax Department and the Enforcement Directorate. For Indian technology entrepreneurs, the route to tax relief through relocation is legal—but not without risk or ease. Professional advice and diligent compliance are essential.
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