India’s start-up ecosystem has been thriving significantly over the years. As per the latest The National Association of Software and Service Companies (NASSCOM) report, with the addition of almost 1,300 active tech start-ups in FY 2022-23, this number now stands between 25,000 to 27,000 currently.

While most of these start-ups are domiciled in India, how rapid globalisation provides numerous opportunities for them to establish their businesses internationally to harness commercial and administrative benefits. The United Arab Emirates (UAE) has especially emerged as a lucrative overseas destination for Indian start-ups to establish their businesses.

All Roads Lead To The UAE?

With a congregation of entrepreneurs and investors from all over the world, including India, the UAE has established itself as a centre for commerce and business in the Middle East region. One of the main reasons for this is its advantageous ‘Tax Advisory’ regime.

Since the nation has no history of corporate or personal income taxes; corporate tax is only levied on oil companies and foreign bank branches. This results in surplus revenue and income for the people and is a key reason why the UAE is becoming a desirable location for Indian organisations seeking to grow their overseas operations.

Entrepreneurs from India who operate in the UAE can gain from a tax-efficient environment, which enables them to increase their investment and accelerate their business growth.

In contrast, the Indian tax system levies both corporate and personal income tax. This can be financially challenging for start-ups, especially during their growth stages.

To assist companies in navigating the intricate tax laws in the nation, the UAE provides a variety of tax counselling services, which is very helpful for Indian start-ups unfamiliar with its tax structure and regulations.

Simplifying Taxation

The administration of taxes in the UAE is governed by the Federal Tax Authority (FTA). Interestingly, over 47 free zones facilitate exemptions in value-added tax, capital gains tax, corporate tax and withholding tax, as the Middle Eastern country is keen to boost foreign investment.

Compared to the Indian tax system, the UAE tax system is simpler and less complicated, with fewer rules and compliance requirements. Since they are not required to invest a lot of resources and money in tax compliance, Indian start-ups find it easier to establish and run their companies in the UAE.

Moreover, double taxation avoidance agreements (DTAAs) have been signed between the UAE government and several nations, including India. Such diplomatic agreements have relieved Indian start-ups operating businesses in the UAE by preventing them from paying taxes twice on the same income in both nations.

Exemptions For Start-Ups

The UAE provides a variety of tax rebates and incentives for Indian start-up enterprises, including the elimination of customs duties on products exported from free zones. Indian start-ups can reduce their operational expenses and boost their profitability with the assistance of these incentives and exemptions.

Healthcare, education and transportation are examples of the primary industries and commercial services that are free from Value Added Tax (VAT) in the UAE. This can significantly reduce their operational costs and boost their profitability, which can be especially helpful for Indian entrepreneurs and start-ups operating in these sectors.

Moreover, entities that are engaged in import-export activities can profit from the UAE's exemption from customs duties on items that are re-exported from free zones. This exemption can help lower the price of re-exporting goods from the UAE to other nations.

Since businesses operating in the UAE are not subject to corporate taxes, the sale of assets, including shares of corporations, is not subject to capital gains tax in the country. Indian start-ups thinking of selling their assets in the UAE or investing in other companies could find this extremely advantageous.

Access To A Larger Global Market

Indian start-ups now have access to a sizable and expanding consumer market through the UAE, which serves as a gateway to the larger Middle East and North Africa (MENA) area. Those aspiring to grow operations globally will find the UAE to be an attractive hub given its strategic location and advanced infrastructure.

For Indian start-ups, the UAE provides a wide range of industries to invest in, including technology, healthcare, renewable energy, and tourism, among others. This variety enables companies to take advantage of their strengths and explore new possibilities in their developed economy.

UAE’s tax advisory is a ray of hope for Indian start-ups aspiring to venture into international markets to earn profitable revenues and benefits. Will we soon see more entities set up their operations in this jewel of the Middle East?

Written by: Prateek Toshniwal is the director at UAE-based MI Capital Services and a financial advisor at Ivy Growth Associates, a Surat-based angel network