FEMA, the India-UAE BIT and Your Rights as an Indian Business Owner in Dubai

If you own a business in Dubai or anywhere in the UAE, you have more legal protection than you may realise — and more compliance obligations that have been triggered by the current conflict than most business owners are aware of. The India-UAE Bilateral Investment Treaty (2024) is in force. FEMA provides a legal mechanism for repatriation of your assets. The Companies Act governs your Indian parent entity's obligations. And the India-UAE Double Taxation Avoidance Agreement (DTAA) determines how your exit will be taxed. This article explains each of these instruments and what you need to do now.

FEMA: The Framework for Repatriating Your Gulf Assets

The Foreign Exchange Management Act, 1999 governs all cross-border money flows involving Indian residents and entities. It is the primary legal instrument for any Indian individual or company that is winding down Gulf investments and bringing assets back to India. Getting it right matters — FEMA violations can result in penalties of up to three times the sum involved, and regularisation of past violations requires a formal compounding process with the Reserve Bank of India that is both time-consuming and expensive.

The key requirements under FEMA for repatriation of overseas business assets are: first, sale proceeds from overseas investments must be repatriated within 180 days of realisation — failure to do so requires RBI compounding; second, a proper independent valuation of the transferred assets is required; third, Form FC-TRS must be filed with the RBI for any transfer of shares in an overseas entity; fourth, a CA-certified Form 15CB must be obtained before any remittance is made from India; and fifth, Form 15CA must be filed online before the funds move through an authorised dealer bank.

NRO accounts permit repatriation of up to $1 million per financial year after applicable taxes. NRE accounts and FCNR accounts permit full repatriation of principal and income. The proceeds must flow through scheduled commercial banks in India acting as authorised dealers.

Companies Act Obligations for Indian Entities with UAE Subsidiaries

If you have an Indian parent company with a UAE subsidiary or branch, the current situation has triggered specific Companies Act 2013 obligations that must be addressed regardless of whether you decide to wind down or maintain your Gulf presence.

The board of the Indian parent company must pass a resolution formally acknowledging and addressing the situation — whether that is authorising a wind-down, documenting the force majeure impact, or approving emergency measures to protect the subsidiary. The RBI must be notified of any divestment of overseas direct investment through Form ODI. Any loss on wind-down must be accounted for correctly in the Indian parent's books — impairment of overseas investment is a disclosure item in the statutory accounts. Transfer pricing documentation is required for any inter-company transactions that occurred at non-arm's length prices. Critically, directors of the Indian parent company remain personally liable for FEMA and Companies Act compliance failures even if the overseas entity is being wound down.

The India-UAE Bilateral Investment Treaty (2024): Your Protection Instrument

A new India-UAE Bilateral Investment Treaty came into force in 2024, replacing the 2013 agreement that had expired in September 2024. This treaty is the most powerful legal instrument available to Indian investors who have suffered loss due to UAE state action — direct or indirect.

The protections the BIT provides include: protection from direct and indirect expropriation without adequate compensation; fair and equitable treatment under the international law standard; most-favoured-nation treatment; full protection and security for the investment; and the free transfer of investment-related funds including profits, sale proceeds, loan repayments, and compensation payments. (Source: UNCTAD Investment Policy Hub.)

For businesses that have suffered documented loss traceable to UAE state action — including state-directed restrictions on business operations, confiscation or restriction of assets, or interference with fund transfers — the BIT provides a legal basis for claims through investor-state dispute settlement (ISDS) arbitration.

There are important limitations to understand: mandatory exhaustion of local UAE remedies for three years before ISDS arbitration can be commenced; carveouts for taxation measures and general regulatory actions; and exclusion of claims involving corruption or round-tripping structures. BIT arbitration is not a quick fix — it is expensive and time-consuming. But for significant, documented losses, it is a powerful instrument. And the treaty's fund transfer protections are immediately relevant even without formal arbitration.

DTAA Tax Planning: Get It Right Before the Transaction

India has Double Taxation Avoidance Agreements with UAE, Saudi Arabia, Kuwait, Qatar, and Bahrain. These treaties determine how your exit from Gulf investments will be taxed — and getting the analysis wrong before you trigger the transaction is an expensive mistake.

For capital gains on disposal of a UAE business: the applicable DTAA provision must be analysed against the specific nature of the asset — whether it is shares in a company, immovable property, or business assets. For business profits: if a UAE Permanent Establishment exists, profits attributable to it are taxed in the UAE. If the PE is being wound down, the attribution between India and UAE for the winding-up period requires careful analysis. For rental income from Dubai property: this is taxable in India as part of an Indian tax resident's global income, with credit available under the DTAA for any UAE-level tax paid. TDS requirements apply when a buyer remits sale proceeds to an NRI — failure to deduct creates buyer liability.

One important note: UAE introduced a 9 per cent corporate income tax from June 2023 on business profits above AED 375,000. DTAA provisions still apply for the benefit of Indian resident shareholders even under the new UAE CIT regime.

Force Majeure: Time-Limited Action Required

Most commercial contracts and UAE free zone leases contain express force majeure clauses. If the current conflict has prevented you from fulfilling a contractual obligation, you may have a right to claim force majeure relief — but only if you give formal notice within the contractually specified window, which is typically 7 to 30 days from the qualifying event.

If you have missed the window, you may still have a remedy under Section 56 of the Indian Contract Act (frustration of contract) — but the analysis is different and the evidentiary burden is higher. Material Adverse Change clauses in investment agreements and share purchase agreements that have been signed but not completed may allow exit from those transactions if the conflict qualifies as a MAC event. Each contract must be reviewed on its specific terms.

A Step-by-Step Checklist for Business Owners

The immediate priorities for Indian business owners with Gulf operations are: one, review all contracts for force majeure clauses and issue formal notices now if the window is open; two, secure all corporate records, financial statements, and asset documentation for the UAE entity; three, obtain an independent valuation of the UAE entity if a wind-down or transfer is contemplated; four, engage your CA to prepare Form 15CB and file Form 15CA before any repatriation is triggered; five, pass board resolutions at the Indian parent company level addressing the situation; six, check RBI ODI filings are up to date; and seven, map your position under the India-UAE DTAA before any taxable event is triggered.

Sansa Legal: Specialist Advice for This Situation

Sansa Legal advises Indian businesses and investors on every aspect of the legal framework described in this article — FEMA compliance, Companies Act obligations, India-UAE BIT strategy, DTAA tax planning, force majeure notices, and full repatriation structuring. We work with businesses of all sizes, from individual entrepreneurs to listed Indian companies with significant UAE subsidiaries.

If your business is in the Gulf and you need to understand your options — or if you have already started a process and want to make sure you are doing it correctly — please contact us at info@sansalegal.com or visit sansalegal.com. The legal framework is there to protect you. Use it.