Key takeaways
- A Dubai licensor and Indian licensee should define the licensed IP, field and territory, the improvements clause and an arm’s length royalty.
- Royalty payments are generally current account transactions under FEMA, but check the current RBI directions with your bank.
- Secondary sources put the India-UAE treaty royalty rate at 10%, subject to a tax residency certificate and Form 10F.
- Transfer pricing, GST on import of services and related-party approvals under the Companies Act all apply.
Many Dubai-based technology groups keep their software and brand in a UAE company and run development or sales from an Indian subsidiary. An intercompany IP licence Dubai India structure lets the Indian company use the software, and lets the group move value back to Dubai as royalties. Done well it is legitimate and common. Done badly it can lead to tax disputes, failed remittances and ownership gaps.
This guide explains how an intercompany IP licence Dubai India arrangement works: the contract terms that matter, the FEMA rules for remitting royalties, withholding tax under the India-UAE treaty, transfer pricing, GST, the Companies Act and registration points, and a checklist. UAE tax and corporate points must be confirmed with UAE-licensed advisers, because Halverton & Co. is an Indian law firm.
Why groups use an intercompany licence
A Dubai parent that owns the software copyright, source code and trade marks usually wants them held in one place, with the Indian subsidiary receiving only the rights it needs. An intercompany IP licence Dubai India structure does this: the Dubai company is the licensor, the Indian subsidiary is the licensee, and the subsidiary pays a royalty. It keeps ownership with the group’s IP holding company and supports fundraising, because investors want to see clear title.
The alternative is for the Indian subsidiary to own what its developers write. That can be efficient, but it moves value into India and can complicate later sales or fundraising. Many groups combine the two: the Dubai company owns the core platform, and the Indian company is a service provider whose work product is assigned to the parent. Which model fits depends on where the real development, decisions and risks sit.
Whatever the model, the legal documents should match what happens in practice. A licence on paper that does not reflect the actual control and development can be challenged by tax authorities. Decide the structure with both Indian and UAE advisers before code is written, not after.
The licence agreement: terms that matter
Define the licensed IP precisely: software versions, source and object code, documentation, trade marks and any know-how. State the rights granted: use, modify, reproduce, sublicense to customers, and whether the licence is exclusive or non-exclusive, and for what field and territory. Under the Copyright Act, 1957, a licence of copyright should be in writing, and under Section 19, assignments need to state the rights, duration and territory, with defaults that can surprise parties, so be explicit.
Address improvements. If Indian developers modify the software, say who owns the improvements. A common position is that the licensor owns the core and all derivative works, with a licence back where needed, backed by employee and contractor IP assignments in India. Without this, ownership of the Indian team’s work can be unclear. Also address quality control, audit rights, confidentiality and security.
Set the royalty clause carefully: rate or formula, base, currency, payment timing, tax gross-up and late payment. The rate should be defensible as arm’s length. Include term and termination, consequences on termination, governing law and dispute resolution. An intercompany IP licence Dubai India agreement is a related-party contract, but it should read like one between independent parties, because tax authorities will compare it with the market.
The structure should also reflect the real facts. If the Indian subsidiary designs, builds and tests the software and the Dubai parent only holds the legal title, tax authorities may argue that the Indian entity has contributed more than a mere licensee and should be rewarded accordingly. A common answer is to treat the Indian company as a service provider paid on a cost-plus basis, with a licence only for what it uses to serve the group. Decide this before the contract is drafted, because the royalty clause follows from it.
FEMA, withholding tax and treaty relief
Under FEMA, payment of royalties is a current account transaction. Reports and practice suggest royalties for technology and licence payments can be made through an authorised dealer bank on the automatic route without prior approval, on the basis of the agreement and the tax documents, after caps were removed in earlier years. Check the current RBI directions and your bank’s requirements, because FEMA rules are updated from time to time. We did not verify the current rules in this research.
| Item | Point | Who handles it |
|---|---|---|
| Withholding tax | Domestic rate of 20% plus surcharge and cess; secondary sources put the India-UAE treaty rate at 10% under Article 12 | Indian payer |
| Treaty relief documents | Tax residency certificate, Form 10F and possibly a beneficial ownership confirmation | UAE licensor |
| Remittance | Authorised dealer bank, with Form 15CA and a chartered accountant’s Form 15CB | Indian payer |
| Transfer pricing | Arm’s length royalty, benchmarking and annual documentation | Both entities |
| GST | Normally import of services under the reverse charge | Indian licensee |
Indian tax law requires the payer to withhold tax on royalties paid to a non-resident. The domestic rate is 20% plus surcharge and cess under the Income-tax Act, 1961 provisions, now continued in the Income-tax Act, 2025. The India-UAE treaty reduces the rate for royalties to 10% under Article 12, according to several secondary sources. To claim it, the UAE company generally needs a tax residency certificate and a Form 10F, and may be asked for a beneficial ownership confirmation.
Two practical points arise. A tribunal decision reported in the research held that, for treaty purposes, royalty is taxable when actually received, not when accrued, which matters for accrued but unpaid royalties. The payer also files Form 15CA and a chartered accountant’s Form 15CB for the remittance. Keep documents consistent with the agreement, because mismatches delay remittance.
Transfer pricing, GST and company law
Transfer pricing applies because the licence is between associated enterprises. The Indian subsidiary must show that the royalty is at arm’s length, supported by a benchmarking study, documentation and an accountant’s report filed each year. Typical issues are the royalty rate, whether the subsidiary really benefits and whether it is a contract developer that should be paid on a cost-plus basis instead. A royalty that leaves the Indian company with losses for years is a classic audit trigger.
GST applies to cross-border services. A licence of IP from a foreign company to an Indian company is normally an import of services, on which the Indian recipient pays GST under the reverse charge mechanism, and may claim input tax credit if eligible. Confirm the treatment with a GST adviser, including valuation of related-party supplies.
Company law adds approvals. Under the Companies Act, 2013, related-party transactions may need board or shareholder approval and disclosure in the financial statements, depending on thresholds and whether they are in the ordinary course at arm’s length. Registration may also be relevant: patent licences are registered under the Patents Act, and trade mark use by a related company is addressed by the permitted use provisions of the Trade Marks Act, 1999.
Substance in the UAE is also a live issue. Under UAE corporate tax and economic substance rules, a company that earns royalties is expected to have people, premises and decision-making that match its claimed role. A Dubai licensor that has no staff and is managed from India can face questions on both sides. Align the legal structure with where management and control actually sit, and keep board minutes that show real decisions in the right place.
Checklist, remedies and quick answers
Before signing an intercompany IP licence Dubai India agreement, check: who owns what today, and whether Indian developers have assigned their work; the grant, field and territory; the improvements clause; the royalty and its benchmarking; FEMA remittance steps; treaty relief documents; GST treatment; related-party approvals; and UAE tax treatment of the royalty income, including substance requirements, with UAE advisers. Document the commercial reasons for the structure. Review annually, because rates and facts change. If tax authorities query the arrangement, respond with the agreement, the benchmarking report and evidence of the services and value provided, and take advice early. If royalties have been paid without the right documents, correct the filings and consider voluntary disclosure. Where the Indian company has already created IP without proper assignments, regularise ownership by written assignments from employees and contractors before a financing or sale. The most common failure with an intercompany IP licence Dubai India structure is paperwork that does not match reality.
Related reading: licensing UK technology to Indian companies, licensing US software in India: withholding tax, a Dubai holding company for Indian founders and FEMA, paying Indian developers from a Dubai Web3 company, VARA and UAE corporate tax for Indian-founded firms, copyright licences between UK and Indian companies and who owns code written by Indian developers.
Quick answers
How are royalties from an Indian subsidiary to a Dubai parent taxed?
India requires withholding tax on royalties paid to a non-resident. Secondary sources put the India-UAE treaty rate at 10% under Article 12, subject to a tax residency certificate and Form 10F, against a higher domestic rate. Confirm with a tax adviser.
Does an intercompany IP licence Dubai India arrangement need RBI approval?
Royalty payments are generally current account transactions that can be remitted through an authorised dealer bank without prior approval, but FEMA directions change, so check the current rules with your bank.
Why does transfer pricing matter for the licence?
Because the parties are related, tax authorities test whether the royalty is at arm’s length. A benchmarking study and annual documentation are needed in India, and UAE transfer pricing rules also apply.
Can unpaid accrued royalty be taxed in India?
One reported tribunal decision held that, for the India-UAE treaty, royalty is taxable when actually received and not when accrued. This is one decision, so take tax advice.
Do we need a benchmarking study?
Yes. Because the parties are associated enterprises, the Indian subsidiary must show an arm’s length royalty with documentation filed each year, and UAE transfer pricing rules also apply.
Final word
Halverton & Co. is an Indian law firm advising NRIs, founders, investors and businesses in Dubai and across the UAE on Indian law, including FEMA, royalty and transfer pricing structuring, IP assignment and cross-border technology contracts for Dubai-headquartered groups with Indian subsidiaries. We practise in Jharkhand, Maharashtra and before the Supreme Court of India, and work alongside UAE-licensed counsel, who advise on UAE law. Halverton & Co.: Where tech needs law! If you have a question about Indian law, write to us at office@halvertonandco.com, or get in touch.
This article reflects developments reported up to late October 2026. It is for general information only, is not legal advice, and does not create an advocate-client relationship. Halverton & Co. is an Indian law firm and does not advise on UAE law; UAE-law points should be confirmed with UAE-licensed counsel.
Sources
Related practice area
Intellectual Property
Trade marks, copyright, patents and designs. Searched, filed, licensed and enforced under Indian law.
View the practice areaComments
No account needed. Comments are reviewed before they appear, so yours will show here once approved. Please do not share confidential details or describe your own legal matter: replies are general discussion, not legal advice, and do not create an advocate-client relationship. For your own situation, write to office@halvertonandco.com.
