Cross-Border Remuneration to Indian Directors from Dubai-Based Companies: Legal Framework, GST, and Tax Planning

As global business structures become increasingly interconnected, it’s common for Indian professionals to serve as directors in foreign companies—including those incorporated in tax-friendly jurisdictions like Dubai. However, such cross-border arrangements trigger a host of tax and regulatory considerations in India.

This article delves into the legal nuances, tax implications, and compliance requirements when Indian-based directors receive remuneration or professional fees from Dubai-based companies. We explore key distinctions between salary and professional income, interpret critical provisions under the Income Tax Act, GST laws (IGST Act), and Transfer Pricing rules (including Form 3CEB), and provide a practical framework to ensure tax-efficient and legally compliant structuring.

Whether you’re a startup founder expanding operations globally, or a professional consultant advising multinational clients, understanding these legal and tax interpretations is vital to avoid defaults and leverage legitimate planning opportunities—without crossing into the domain of tax avoidance

    1.  Income Tax Act, 1961 – Applicability & Planning

     Key Sections:

Section	Provision
5(1)(c)	Global income of a resident is taxable in India
9(1)(ii)	Income deemed to accrue/arise in India if services are rendered in India
9(1)(vii)	Fee for technical/professional services used in India is deemed to accrue in India
192	TDS on salary
194J	TDS on professional fees
90	DTAA relief – to avoid double taxation
271H, 271C	Penalty for TDS non-compliance

 Interpretation:

• If the Indian director is a tax resident, any salary or professional fee is taxable in India, even if paid by a foreign (Dubai) company.

• If the service is rendered from India, then under Section 9, the income is deemed to accrue in India.

• Dubai company has no TDS obligation unless it has a PE (permanent establishment) or business connection in India.

• If paid as salary, then TDS u/s 192 may apply (if routed through an Indian office/agent).

• If paid as professional services, and the director invoices the Dubai company from India, it may qualify as “export of service” under GST if conditions are met.

2. Export of Services under GST Law (Section 2(6), IGST Act)

 All 5 Conditions Must Be Satisfied:

Condition	Explanation
Supplier is in India	Indian-resident director
Recipient is outside India	Dubai-based company
Place of supply is outside India	Must satisfy POS rules under IGST
Payment in convertible foreign exchange	Must be received in USD/AED etc.
Not establishments of the same person	Dubai Co. & Indian director must be separate legal persons

Interpretation:

• If all conditions are met, service is zero-rated, i.e., GST not chargeable, and input tax credit can be claimed, if applicable.

• However, if the director qualifies as an intermediary (under Section 13(8)(b)), place of supply becomes India, and GST will apply.

• Substance over form matters—GST authorities may review if the service is “delivered” locally or consumed abroad.

 Important: Each engagement should be assessed for intermediary risk, contract terms, and location of consumption.

3. Salary vs. Professional Fee: Which Is Better?

Aspect	Salary	Professional Fee
TDS	Section 192	Section 194J
Deductible Expenses	Not allowed	Allowed under Sec 44ADA/28
PF/ESI etc.	Applicable (if routed via Indian Co)	Not applicable
GST	Not applicable	Applicable unless exempt under “export”

Professional Fee with Export Status is better if:

• Work is done from India

• Contract clearly establishes service is exported

• Paid in convertible currency

• No establishment linkage

4. Dubai Company: What Are Its Indian Tax Obligations?

Question	Answer
Does Dubai Co. need a PAN in India?	❌ Not unless it has a PE or business connection
Is it required to deduct TDS?	❌ Not unless salary is routed via an Indian agent
Can it avoid filing ITR in India?	✅ Yes, if no taxable presence in India
Should it document payments?	✅ Yes, to avoid future dispute or litigation

5. Transfer Pricing (Form 3CEB) & Related Party Disclosure

Applicability:

• Under Section 92A and 92B, if Indian director is a “related party” or controls the Dubai company, and the company is considered an Associated Enterprise (AE), Transfer Pricing provisions apply.

• If value of services > ₹1 crore (or thresholds revised under Rule 10A-D), Form 3CEB must be filed and arm’s length pricing must be ensured.

Precautions:

• Maintain inter-company agreement

• Benchmark service fee (e.g., using CUP method or TNMM)

• Keep records of actual services, deliverables, communication

6. Best Practices & Compliance Checklist

Action	Status
Sign service contract with Dubai entity	✅
Ensure payment in convertible forex	✅
Obtain IEC (if needed for zero-rating under GST)	✅
File GST LUT for export	✅
Maintain documentation for income tax audit	✅
If professional fee > ₹50 lakh, report in 3CEB	✅
File ITR with foreign income disclosure	✅

Case Study Highlight

 Case: ABC Dubai Ltd. engages Mr. Sharma (India) as advisor

• Facts: Sharma raises monthly invoice, paid in USD, no Indian presence for Dubai Co.

• Planning:

  • Sharma qualifies as exporter of service.

  • Applies for LUT under GST and avoids charging tax.

  • Files ITR as self-employed professional.

  • Keeps agreement + forex receipts for audit trail.

Result: No GST payable, full compliance, income taxed in India under Section 44ADA (presumptive 50% expense deduction), Dubai Co. faces no Indian compliance burden.

Final Thought: Tax Planning, Not Avoidance

Tax strategy must rely on clarity, documentation, and lawful structuring:

• Define service terms

• Avoid intermediary trap

• Retain evidence of export nature

• Comply with all tax laws and reporting obligations

Lawful tax planning ensures peace of mind, smooth audits, and zero defaults.