Remote Work from India: Key Tax, PE and Compliance Considerations for UAE Entities

Created By : Arushi Mahajan

Remote working from India or anywhere else in the world for a UAE-based employer can create Indian corporate tax exposure for the UAE employer (via Permanent Establishment (PE), “business connection”, or through Place of Effective Management (POEM)). It can also trigger Indian personal tax exposure for the employee as his salary could be taxable in India where employment is exercised in India. All of this risk depends heavily on facts such as the employee’s duration in India, job function and authority, whether he is engaged in client-facing / revenue-generating activities, whether his home is “at the disposal” of the employer, and whether the employee’s activities create contracting authority or a service/fixed place PE under the India - UAE treaty. 

At the outset, short-term, temporary relocation (e.g., war or other geopolitical disruptions) with limited internal duties may not lead to a PE risk, especially if the employer can evidence that India work is exceptional, not required, and not core income generating. However, unlike the COVID-19 period (where the OECD issued specific interpretive guidance), there is no automatic “war/force majeure” safe harbour in Indian domestic law or India–UAE treaty text, so risk is still fact-dependent. 

Key Risks for UAE Employers

1. Fixed place PE

If employee’s home or other location (hotels, guest houses) in India becomes a business base used continuously and, in a way, attributable to the employer. In case of PE exposure in India, UAE entity may elect to claim the foreign PE exemption in UAE excluding income and associated expenditure of foreign PEs from UAE taxable income. However, foreign tax credits will be lost in that case.

2. Dependent agent / agency PE

If the employee in India habitually concludes contracts or negotiates them in a way routinely accepted (or otherwise has real authority in concluding those contracts). 

3. Service PE

If employees furnish services in India through employees/personnel for the same or connected projects for periods aggregating more than 9 months in any 12-month period. 

4. POEM Risk

Where key management and commercial decisions are in substance made from India during the situations such as war (e.g., Indian founders/CEOs/board members effectively could be seen operating from India for sustained periods). This risk can result in the worldwide income of the UAE entity to be taxed in India. 

Key Risks for UAE Employees

For the UAE employees working in India, the material risks are as follows:

• If an individual is (or becomes) an Indian tax resident due to their stay in India, India may tax his worldwide income, including salary received from a foreign employer, subject to treaty relief, where applicable.
• The treaty relief is available for short stays of up to 6 months in India in the relevant tax period and the salary of the employee should not be borne by a PE of an UAE entity, if any, in India. 

What Should UAE Employers Do?

UAE Employers should implement a remote-work cross-border control policy: pre-approval, business case, role-based restrictions (especially sales/contracting), location and duration tracking, and contract/authority. It should plan well in advance for all the local payroll compliances in case they have to register for the same in employee’s home country due to prolonged stay there i.e registering for PAN, tax withholding requirements, if any.

Employees should be well aware of their number of days already spent in India on the past vacations for tax period 2025 and make a dry run computation of their Indian estimated tax early in cases they end up staying in India for a prolonged period of time (let’s say more than 6 months where treaty relief is also not applicable), and plan for compliance (advance tax / return filing) where India taxation is likely, because UAE does not have personal tax at all so no foreign tax credits would be there. If the employee wishes to claim treaty benefits, they should obtain a UAE Tax Residency Certificate issued by the Federal Tax Authority, UAE.

Under the UAE law, an individual is considered a tax resident only if certain conditions are met. The most straightforward test is physical presence - spending 183 days or more in the UAE within a 12-month period. There is also a 90-day rule for GCC nationals or residents, but that comes with additional requirements such as having a residence visa and a permanent home or active employment/business in the UAE. Alternatively, a person can qualify if their “centre of personal and financial interests” is genuinely in the UAE - meaning their life, family, and economic activities are actually based in the UAE.

OECD Guidance on “Home Office” PE:

The OECD issued updated guidance (January 2021) on tax treaties and COVID-19 impacts. It states that whether a PE exists is a complete fact and circumstances based that requires a degree of permanency and that a place must be at the disposal of the enterprise for fixed place PE. 
 

It further explains, specifically for COVID-19 public health measures, that working from home because of extraordinary events and government measures would generally not create a PE, either due to insufficient permanency/continuity or because the home office is not at the disposal of the enterprise; but if remote working persists after things are normal, the home office “may” acquire permanence and give rise to the PE exposure. 

Even though this guidance is explicitly framed as COVID-period guidance (not a permanent remote work safe harbour), the concept remain same - disposal, employer requirement, and permanency which are analysed in ‘work from anywhere’ arrangements.

Pillar Two relevance, especially for large groups:

The UAE has implemented a Domestic Minimum Top-up Tax (DMTT) for Pillar Two in-scope multinational groups (generally €750m threshold), effective for financial years beginning on or after 1 January 2025, aligned with OECD GloBE model rules; the UAE indicates it has elected to implement DMTT (QDMTT-type rules) and at this stage not implement IIR. 

Why Pillar Two matters for remote work PE:

• Under Pillar Two framework, Permanently Established branches/PEs are treated as separate jurisdictional components for effective tax rate computations and allocation of covered taxes (depending on structure and rules), so a new India PE may change the group’s jurisdictional blending, compliance footprint, and top-up tax positions. However, any Indian PE exposure is likely to fall within the transitional safe harbour, given that the effective tax rate already exceeds 15%.
• For many UAE-based employers below the €750m consolidated turnover threshold, Pillar Two is not relevant. 

Risk Matrix for Various Remote-Work Scenarios

The table below shows a risk matrix. “PE risk” refers to the risk of an India PE for the UAE employer under treaty concepts; “withholding/payroll risk” refers to the risk that India payroll obligations arise or become practically necessary; “employee tax risk” refers to likelihood of Indian taxation of the employee’s salary.

Compliance Checklist for HR, Tax and Legal teams

For UAE Employers (HR/Tax/Legal):

• Maintain a register of employees working from India: dates, role, approvals, and nature of activities in India (supports “facts and circumstances” analysis). 
• Validate whether any India-based employee has contract authority, pricing authority, or habitual negotiation patterns (agency PE triggers). 
• Assess whether the employee’s home office in India could be seen as employer-required, and document that it is not (home office disposal test). 
• Track treaty thresholds: 183-day test under the employment article of the India-UAE treaty.
• Establish POEM controls: board meeting calendars, decision logs, delegation matrices, and evidence the place where key management decisions were taken. 
• Evaluate UAE foreign PE exemption election under UAE corporate tax law. 

For Employees (Individual Compliance):

• Determine Indian tax residency early, plan for India return filing and advance tax if required. 
• If relying on treaty salary relief, obtain UAE treaty residence (TRC) at the earliest and confirm day counts and “not borne by PE” conditions. 
• Maintain documentation of where duties were performed and why relocation occurred (especially if temporary due to extraordinary circumstances). 

To conclude, remote work arrangements, while operationally convenient, can create multi-layered tax and regulatory exposures if not carefully structured. For UAE employers, the key lies in proactive planning, clear governance, and continuous monitoring of cross-border activities to mitigate unintended risks.

At AKM Global, we assist global organisations in navigating cross-border tax, PE risk assessments, FEMA implications, and remote workforce structuring. Our team works closely with businesses to design practical, compliant, and scalable solutions, ensuring that operational flexibility does not translate into unintended tax exposure. For more information, please feel free to write to us at info@akmglobal.in.