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TCS on Foreign Remittance

Posted by Admin |21 - June - 2023


The Government of India has raised the Tax Collected at Source (TCS) effective July 1, 2023 rate on foreign remittances under the Liberalised Remittance Scheme (LRS) from 5 percent to 20 percent exceeding an amount of Rs. 7,00,000 (Rupees Seven lakhs) in a financial year. The LRS allows resident Indians to transfer funds abroad up to a specified limit. However, recent developments, including the removal of an exemption for international credit card usage and clarifications regarding certain transactions, have brought about significant changes in the landscape of foreign remittances and their taxation. Let's delve deeper into the details and implications of these updates. TCS will be 5% for amounts exceeding Rs.7 lakh for education and medical treatment abroad. A person can claim this deducted amount while filing taxes as an income tax refund or as credit while computing advance taxes.

Types of remittances and Current TCS rates: -

1.Education loan 0.5% in excess of Rs. 7,00,000/-

2.Any amount for education Other than education loan 5% in excess of Rs. 7,00,000/-

3.Remittance for covering Medical Expenses 0.5% in excess of Rs. 7,00,000/-

4.Overseas Tour Package 20% of the amount

5.Remittance in any other 20% of the amount Case


1.Purchasing units of foreign mutual fund schemes or Exchange Traded Funds (ETFs) will not attract TCS because they do not fall under the Liberalised Remittance Scheme’s jurisdiction.

2.While sending money abroad for educational purposes there is an exemption upto Rs. 7,00,000/-

3.Foreign remittance of any amount towards medical expenditure is also exempt upto Rs. 7,00,000/-

Savings on Foreign Remittance Taxes

1.File your Income Tax Return and demand a refund of the TCS amount deducted if you are a person having no taxable income.

2.File your Income Tax Return and adjust your TCS amount deducted against any tax payable on your income.


The increase in tax on foreign remittances in India can indeed be seen as a measure to ensure proper tax payments from individuals who may be evading taxes by not reflecting high-value foreign transactions on their income tax returns (ITRs). By implementing new tax measures, the Indian government aims to address this issue and improve tax compliance.
Foreign remittances are often made by individuals for various purposes, including buying property in foreign countries. If these transactions are not reported in their ITRs, the government may not be able to tax them appropriately, leading to potential tax evasion. To address this gap, the government has taken steps to increase the tax on foreign remittances, thereby encouraging individuals to report these transactions and pay the appropriate taxes.
By imposing higher taxes on foreign remittances, the government aims to create a stronger incentive for individuals to comply with tax regulations. This measure may help discourage individuals from underreporting or avoiding taxes on foreign transactions. It can also serve as a deterrent to those who engage in tax evasion by hiding assets or income abroad.
It is important to note that while these tax measures aim to enhance tax compliance and revenue collection, their effectiveness may depend on various factors, including the willingness of individuals to comply, the efficiency of tax administration, and the enforcement of relevant regulations. The government's efforts to curb tax evasion through foreign remittances should be seen as part of a broader strategy to strengthen tax governance and increase overall tax compliance in the country.


Economic Substance Regulations (ESR)

Posted by Admin |20 - June - 2023


The UAE introduced Economic Substance Regulations in 2019 which was amended by Cabinet of Ministers Resolution No 57 of 2020 concerning Economic Substance Regulations in August 2020.

The regulations require companies in the UAE i.e onshore companies, freezone companies and other business forms which carry out certain activities to maintain and demonstrate an adequate economic presence in the UAE relative to the activities they undertake. The purpose of the regulations is to ensure that UAE entities have sufficient economic activity undertaken within the UAE that is commensurate with the actual profits reported in the UAE. ESR applies to legal persons and unincorporated partnerships registered by a competent authority in the UAE, that carry out one or more relevant activities as defined under ESR (referred to as “Relevant Activities”) across the UAE, including Free Zones and Financial Free Zones (such entities are referred to as “Licensees”).

Relevant Activities

All entities that provide the following services shall be subject to ESR:-



3.Investment fund management

4.Lease – finance



7.Holding Company

8.Intellectual property

9.Distribution and service center

A UAE business that undertakes one or more of the above activities during the relevant Financial Year is referred to as a Licensee. Where a business carries out one or more of the above activities but is exempt from certain requirements under the Economic Substance Regulations, the entity is referred to as an Exempted Licensee.

Economic Substance Report

This purpose of the Economic Substance Report is to provide the National Assessing Authority with information on the Licensee and the income, expenditure, assets, employees and governance related to its Relevant Activities in the UAE.
Each Licensee must file an Economic Substance Report on a stand-alone basis, irrespective of whether the Licensee is part of a consolidated group for financial reporting or VAT purposes.
A UAE corporate entity that operates through one of more branches registered in the UAE must report the Relevant Activities of itself and those of its UAE branches in one composite Economic Substance Report. The Economic Substance Report must be filed with the Regulatory Authority with which the Head Office is registered. A UAE branch of a foreign entity is not required to file an Economic Substance Report if the Relevant Income of the UAE branch is reported and subject to tax in the jurisdiction of the foreign parent / head office. Where a UAE entity carries on a Relevant Activity through a foreign branch or permanent establishment that is subject to tax in the foreign jurisdiction, the UAE entity should not report (i.e. exclude) in its Economic Substance Report the Relevant Income, assets, expenditure and employees of the foreign branch or permanent establishment.
The Economic Substance Report should be filed electronically on the MoF ESR portal within 12 months from the Financial Year end of the entity.
Non-compliance with the obligation to file an Economic Substance Report before the deadline is subject to a penalty of AED 50,000, and can result in the Licensee being deemed to have failed the Economic Substance Test for the relevant Financial Year. Providing incorrect or false information in the report will also attract a penalty of AED 50,000.

Economic Substance Notification

The purpose of the Notification is to provide the Regulatory Authorities with certain initial information in respect of Licensees and their activities in the UAE for the relevant Reportable Period. The information provided as part of the Notification is a prerequisite to filing an Economic Substance Report for the same period.
Both a Licensee and an Exempted Licensee is required to submit a notification.
The Licensee must report all Relevant Activities undertaken during the Financial Year, irrespective of whether the Relevant Activity was conducted throughout the entire Financial Year.
Each Licensee must file a Notification on a stand-alone basis, irrespective of whether the Licensee is part of a consolidated group for accounting or VAT purposes.
The UAE head office / parent company must file a single consolidated Notification that includes details of all its UAE branches that carry out a Relevant Activity, irrespective of whether the head office itself undertakes a Relevant Activity.
The Economic Substance Regulations Notification should be filed electronically on the MoF ESR portal within 6 months from the Financial Year end of the licensee.
Non-compliance with the obligation to file a Notification before the deadline is subject to a penalty of AED 20,000. Providing incorrect or false information I the notification will attract a penalty of AED 50,000.

Exempt Licensees

  • Entities wholly owned by UAE Nationals or UAE Resident Individuals.
  • Investment Funds that are defined in the regulations or Special Purpose Vehicles (SPV) or an investment holding company of an investment fund as defined in ESR Regulations.
  • Tax residents in a jurisdiction other than the UAE.
  • Entities that are a branch of a foreign company and all Relevant Income of the UAE branch is subject to tax in the jurisdiction of the foreign company.

An Analysis of UAE Corporate Tax Regime

Posted by Admin | 19 - June - 2023


The Corporate Tax Law taxes income on both a residence and source basis. The applicable basis of taxation depends on the classification of the Taxable Person. For instance a Resident Person will be taxed on income derived from both domestic and foreign sources and a Non-Resident Person will be taxed only on income derived from sources within the UAE.
(Person stated above shall be a juridical person incorporated/established/recognised in the state, including a free zone person, or of a foreign jurisdiction that is effectively managed and controlled in the state)
The residential status for Corporate Tax purposes is determined as per specifically mentioned in The Corporate Tax Laws.


Certain types of businesses or organizations are exempt from Corporate Tax as mentioned here:-

In addition to not being subject to Corporate Tax, Government Entities, Government Controlled Entities that are specified in a Cabinet Decision, Extractive Businesses and Non-Extractive Natural Resource Businesses may also be exempted from any registration, filing and other compliance obligations imposed by the Corporate Tax Law, unless they engage in an activity which is within the charge of Corporate Tax.


Corporate tax is imposed on the taxable income earned by a taxable person. In this context, a taxable person refers to a business entity or corporation that is subject to corporate tax.
Corporate tax is typically imposed on an annual basis. The tax period refers to the specific period for which the taxable person's income and expenses are considered for tax calculation purposes. In most cases, this aligns with the taxable person's fiscal year. The taxable person is responsible for calculating their corporate tax liability on a self-assessment basis. This means that they are required to determine the amount of tax they owe based on the relevant tax laws and regulations. The taxable person fulfills their tax obligations by filing a corporate tax return with the appropriate tax authority. The return contains information about the taxable person's financial statements, adjustments made to determine taxable income, and other relevant details. The starting point for calculating taxable income is the taxable person's accounting income. This refers to the net profit or loss before tax as reported in their financial statements, prepared according to the applicable accounting standards. To determine the taxable income for the relevant tax period, certain adjustments are made to the accounting income. These adjustments take into account specific provisions of the tax law. For example, income that is exempt from corporate tax is excluded, and expenditures that are not deductible or only partially deductible for tax purposes are adjusted accordingly.
The Corporate Tax Law also exempts certain types of income from Corporate Tax. This means that a Taxable Persons will not be subject to Corporate Tax on such income and cannot claim a deduction for any related expenditure. Taxable Persons who earn exempt income will remain subject to Corporate Tax on their Taxable Income.
In general, legitimate business expenses that are incurred wholly and exclusively for the purpose of deriving taxable income are deductible for tax purposes. This principle allows businesses to deduct expenses that are necessary for their operations and generating income. To be deductible, the expenses must be incurred solely for the purpose of the business. If an expense has both a personal and business component, only the portion directly related to the business can be deducted. The timing of the deduction for different types of expenses can vary. Some expenses may be deducted in the year they are incurred (e.g., office supplies), while others may need to be spread over multiple years (e.g., depreciation of assets).
The tax law may specify the accounting method to be used for recognizing and deducting expenses. This can include accrual basis or cash basis accounting, depending on the jurisdiction and the size of the business. Expenditures related to capital assets, such as buildings, machinery, or intangible assets, are typically not fully deducted in the year of purchase. Instead, they are recognized over the asset's economic life through depreciation or amortization deductions. This allows the business to spread the cost of the asset over its useful life. Some expenses may have specific rules or limitations imposed by tax laws. For example, there may be restrictions on deducting entertainment expenses or certain types of interest payments.
Expenditure that has a dual purpose, such as expenses incurred for both personal and business purposes, will need to be apportioned with the relevant portion of the expenditure treated as deductible if incurred wholly and exclusively for the purpose of the taxable person’s business. Certain expenses which are deductible under general accounting rules may not be fully deductible for Corporate Tax purposes. These will need to be added back to the Accounting Income for the purposes of determining the Taxable Income.


The Corporate Tax rates are 0% and 9%. Corporate Tax will be charged on Taxable Income as follows:

A 0% withholding tax may apply to certain types of UAE sourced income paid to non-residents. Because of the 0% rate, in practice, no withholding tax would be due and there will be no withholding tax related registration and filing obligations for UAE businesses or foreign recipients of UAE sourced income. Withholding tax does not apply to transactions between UAE resident persons.


A Free Zone Person that is a Qualifying Free Zone Person can benefit from a preferential Corporate Tax rate of 0% on their “Qualifying Income” only.
In order to be considered a Qualifying Free Zone Person, the Free Zone Person must:

1. maintain adequate substance in the UAE;

2.derive ‘Qualifying Income’; i.e
(i)income derived from transactions with other Free Zone Persons, except for income derived from Excluded Activities.
(ii) Income derived from transactions with a Non-Free Zone Person, but only in respect of "Qualifying Activities" that are not Excluded Activities.
(iii) Any other income provided that the QFZP satisfies the de minimis requirements.

3.not have made an election to be subject to Corporate Tax at the standard rates; and

4.comply with the transfer pricing requirements under the Corporate Tax Law.

If a Qualifying Free Zone Person fails to meet any of the conditions, or makes an election to be subject to the regular Corporate Tax regime, they will be subject to the standard rates of Corporate Tax from the beginning of the Tax Period where they failed to meet the conditions.


Two or more Taxable Persons who meet certain conditions can apply to form a “Tax Group” and be treated as a single Taxable Person for Corporate Tax purposes.
To form a Tax Group, both the parent company and its subsidiaries must be resident juridical persons, have the same Financial Year and prepare their financial statements using the same accounting standards.

Additionally, to form a Tax Group, the parent company must:

  • own at least 95% of the share capital of the subsidiary;
  • hold at least 95% of the voting rights in the subsidiary; and
  • is entitled to at least 95% of the subsidiary’s profits and net assets.

The ownership, rights and entitlement can be held either directly or indirectly through subsidiaries, but a Tax Group cannot include an Exempt Person or Qualifying Free Zone Person.
When determining the taxable income of a tax group, the parent company is typically required to prepare consolidated financial statements that encompass each subsidiary that is a member of the tax group for the relevant tax period. These consolidated financial statements consolidate the financial results and transactions of all the group members.
In the consolidation process, certain transactions between the parent company and each group member, as well as transactions between the group members themselves, are eliminated. This elimination is necessary for the purpose of calculating the taxable income of the tax group accurately.
The elimination of transactions ensures that intercompany transactions, which involve the transfer of goods, services, or funds within the group, do not artificially inflate or reduce the consolidated taxable income. By eliminating these transactions, the tax group's taxable income reflects the economic activity and transactions with external parties more accurately.
It's important for the parent company and the tax group members to comply with the applicable tax laws and regulations and ensure that the consolidated financial statements accurately reflect the taxable income of the tax group.


All Taxable Persons (including Free Zone Persons) will be required to register for Corporate Tax and obtain a Corporate Tax Registration Number. The Federal Tax Authority may also request certain Exempt Persons to register for Corporate Tax.
Taxable Persons are required to file a Corporate Tax return for each Tax Period within 9 months from the end of the relevant period. The same deadline would generally apply for the payment of any Corporate Tax due in respect of the Tax Period for which a return is filed.


Corporate Tax in United Arab Emirates

Posted by Admin | 20 - May - 2023


United Arab Emirates is one the few nations to follow zero-income tax policy. It is the first time in the history of UAE that a direct tax has been introduced on company profits. The United Arab Emirates is majorly a business zone and there are huge possibilities of investment and economic growth.
Introduction of corporate tax will improve the global business standards and help the UAE government to keep a close watch on illegal tax practices.

Effective Date 1st June, 2023
Scope All businesses and commercial activities
Exemption Activities involved in extraction of natural resources, Individual's personal income and freezone trading companies
Rates Taxable profits up to AED 375,000 shall be subject to 0% tax rate and taxable profits above AED 375,000 shall be subject to 9% tax rate

Corporate Tax in UAE

A corporate tax, is a type of direct tax levied on the income of corporations and other similar legal entities. Businesses or companies with taxable income of less than AED 375,000 will have 0% tax rate and for companies exceeding AED 375,000 will have a 9% tax rate.
The taxation will be applied on adjusted profit of a business enterprise.(Adjusted profit = net profit + non cash expenses - non cash gains). This tax is applicable to every establishment irrespective of nationality.

Major Features:

  • Individuals are not taxed on personal income.
  • Investors who stay in the UAE but conduct business outside will not be taxed in the UAE.
  • Capital gains and dividends earned by businesses in the UAE are not subjected to taxation.
  • Freezone companies, companies which are authorized to trade only within the freezone are not included in the corporate tax.
  • Intra group transactions and restructuring is not subject to corporate tax.
  • An exception to tax is for the extraction of natural resources, which will be taxed at the Emirate level.

Future for businesses in UAE

Every business and commercial activity will have to adhere to ‘The Corporate Tax Law’ from June 1st, 2023. There is a lot to study and comprehend before the foreign investors feel the pressure. Let's look at the broader picture of this new tax regime to understand its effects.

1.UAE’s corporate tax at 9 % is the world’s third lowest tax rate and one of only three Organization for Economic Co-operation and Development (OECD) member states among the 20 countries with the world’s lowest corporate tax rates. This fulfills its obligation towards OECD, desiring for better investment opportunities and at the same time paves the way for economic development and growth from corporate tax.

2.Corporate tax regime promises long term economic stability and growth, making it more attractive to foreign investors and businessmen.

3.Stable economic environment provides greater confidence for businesses to trust their customers and stakeholders.

4.Corporate tax regime reduces UAE’s dependency on oil reserves and it will help them to diversify their goals to other sectors.

5.Tax collected by the government will reflect in infrastructure, telecommunication, transportation network, water and electricity, research and development etc leading to new demands and opportunities.

6.Increased spending on economic acceleration programs will help small and medium sized enterprises to flourish.

These steps will ultimately fuel the countries’ economic growth and incite businesses to choose the UAE as a base for their operations. The country’s strategic location between the East and West makes it perfect for business and commercial activities to thrive. The country’s move to establish corporate tax is a clear sign of promoting economic growth, trade and investment. Overall, the UAE’s economic prospect looks brighter as a result of this move. Establishment of corporate tax will finally lead to job creation, innovation and economic development.


Impact of CEPA to business sectors across UAE and India

Posted by Admin | 12 - May - 2023

The CEPA includes a total of 11 service sectors and 100 subsectors. The key sectors are :

  • Business Services
  • Telecommunication Services
  • Construction and related services
  • Educational Services
  • Environmental Services
  • Financial Services and Insurance Services
  • Health related Services and Social Services
  • Tourism and travel related services
  • Recreational, Cultural and Sporting services
  • Transport services
  • UAE (Trade in Goods) INDIA Trade in Services
    Chemicals Fruits and vegetables Business services
    Mineral Fuels Fish and crustaceans Construction and engineering
    Aluminum Gold and jewelry Communication
    Iron and Steel Cereals Education
    Polyethylene Pharmaceutical products Environment
    Copper Electronics Finance and Insurance
    Pharmaceutical products Healthcare
    Plastics Tourism and travel
    Prepared foods Recreation, Culture and Sports
    Glass and glassware Transport

    1.Market Expansion: CEPA will facilitate increased access to the UAE and Indian markets, creating new opportunities for businesses to expand their customer base and increase sales.

    2.Tariff Reduction: The agreement will reduce or eliminate tariffs on a wide range of goods, making imports and exports more affordable for businesses. This can lead to increased competitiveness and profitability.

    3.Trade Facilitation: CEPA aims to streamline customs procedures and reduce non-tariff barriers, such as import licensing requirements and technical regulations. This simplification of trade processes will save time and costs for businesses engaged in cross-border trade.

    4.Investment Promotion: CEPA provides favorable conditions for investment by offering protections and guarantees to investors. This can attract foreign direct investment (FDI) and promote business development in sectors such as infrastructure, manufacturing, tourism, and technology.

    5.Services Sector Growth: The agreement includes provisions to liberalize trade in services, facilitating the entry and operation of businesses in sectors such as banking, insurance, telecommunications, healthcare, and education. This can lead to the development of new service offerings and market expansion for service providers.

    6.Intellectual Property Protection: CEPA strengthens intellectual property rights (IPR) protection, ensuring that businesses' innovations, patents, trademarks, and copyrights are safeguarded. This encourages research, development, and innovation, fostering business growth and competitiveness.

    7.Collaboration and Knowledge Transfer: CEPA encourages collaboration and cooperation between businesses in both countries. This can lead to partnerships, joint ventures, and knowledge sharing, promoting innovation, technology transfer, and overall business development.

    The impact of CEPA on business development is expected to be positive, creating a conducive environment for trade, investment, and collaboration between the UAE and India. It offers opportunities for market expansion, cost savings, increased competitiveness, and access to new sectors, stimulating business growth and economic development.


India-UAE Comprehensive Economic Partnership Agreement

Posted by Admin | 11 - May - 2023

India’s trade relationship with UAE dates back to about 5000 years. The very strategic location of UAE has brought India closer with respect to trade and commerce. Indian merchants from the Indus Valley brought timber, spices and grain, while merchants in modern-day Sharjah and Ras Al Khaimah in the UAE traded copper, pottery and beadwork. It's no wonder that these two countries reflect each other's food, fabric, architecture and culture over the course of thousands of years.

Even though these two countries are independent now, they do share a deep connection. The highest number of foreign expats in the UAE are Indian migrants. Over 38 % of UAE population include Indians. The colorful relationship between India and UAE can be explained with respect to the kind of trade and commerce these countries are involved in. UAE is India’s third largest trading partner with bilateral trade worth US$ 59 billion for the year 2019-20. UAE is also India’s second largest export destination with export value of US$ 29 billion for the year 2019-20. Not only this, UAE has made an investment of US$ 18 billion in India and India has invested about US$5 billion IN UAE.

A Comprehensive Economic Partnership Agreement (CEPA) was signed on 18th February,2022 to strengthen and make the best of the relationship between India and UAE.

So what is CEPA?

  • A kind of free trade pact that covers negotiation on the trade in services, investments and other economic areas.
  • CEPA is more comprehensive and ambitious focusing on trade-in goods and trade-in services, IPR, sanitary and phytosanitary measures, customs procedures, pharmaceutical products, telecom etc.
  • India has signed CEPAs with South Korea and Japan.

Benefits of CEPA between India and UAE.

  • India will benefit from the market access provided by the UAE, especially for all labor intensive sectors such as gems and jewelry, footwear, textiles, sports goods, furniture etc.
  • Both India and UAE have offered each other market access to the broad service sectors such as business services, communication services, environmental services, travel related services etc.
  • Indian pharmaceutical products will be facilitated in the UAE.
  • UAE gets zero duty access to 90% of India’s exports.
  • India has agreed on a concessional import duty on gold import up to 200 tons per year
  • With such trade liberalization and market access, bilateral trade will increase up to US$ 100 billion and create about one million jobs.
  • First IIT to be established in UAE.
  • UAE has committed US$ 75 billion towards infrastructure development in India.
  • India and UAE will collaborate on exchanging critical technologies, e-payment solutions and e-business.
  • A joint committee to assess, revise and propose amendments to CEPA.
1 Economic Partnership Specialized economic zones in logistics and services, pharmaceuticals, medical devices, agriculture, agri-tech, steel, and aluminum
1 Cultural Cooperation India-UAE Cultural Council to promote cultural co-operation between the two countries
3 Energy Partnership Working together to achieve a just and equitable transition to a low-carbon future
4 Climate Action and Renewables Joint Hydrogen Task Force to assist in the scaling up of technologies.
5 Emerging Technologies Fintech, edutech, health care, logistics and supply chain, agritech, chip design, and green energy are some of the areas
6 Food Security Promote and strengthen infrastructure and dedicated logistics services that connect farms to ports and then to final destinations in the UAE
7 Skill Cooperation Create a set of professional standards and skills framework that they both agree on.
8 Education Cooperation Establish an Indian Institute of Technology in the United Arab Emirates
9 Defense and Security Boost bilateral cooperation in the fight against terrorism, terrorist financing, and extremism.
10 Cooperation in International Arena Strengthen bilateral cooperation in multilateral areas to promote economic and infrastructure cooperation.

India and the UAE have signed a historic trade and economic agreement that will propel the two friendly nations towards a glorious, shared future. CEPA between India and the UAE is a historic deal that will transform the lives of millions of people in the two countries. This ground-breaking agreement will facilitate the free flow of goods, services, capital, technology, and people, as well as mutually beneficial collaboration. CEPA has the capacity to change the destiny of these two countries.