FEMA compliance for Indian residents with a UAE company

If you are an Indian resident who owns, funds, or controls a UAE company, FEMA compliance generally involves three steps: confirming your residential status under FEMA, classifying the shareholding correctly and routing the investment and related filings through a designated Authorised Dealer bank. Owning a UAE company is not prohibited, but the structure, remittance and reporting must follow India’s overseas-investment rules.

This guide is for individuals who are resident in India under FEMA and personally hold, or plan to acquire equity in a UAE company. It covers how the Foreign Exchange Management Act (FEMA) classifies that investment, what your Authorised Dealer bank needs from you, and what you file and when. It does not cover UAE corporate tax, which runs on a separate set of rules, or the mechanics of repatriating profits once your UAE company is trading.

Who counts as a “person resident in India” under FEMA

FEMA has its own definition of residence, and it is not the same test as your Income Tax Return or your passport. Under Section 2(v) of the Foreign Exchange Management Act, 1999, a “person resident in India” is someone residing in India for more than 182 days in the preceding financial year – but that day count is overridden the moment your reason for being in or out of India shows intent to stay outside (or inside) for an uncertain period, such as taking up employment or starting a business abroad.

In practice, FEMA residence and Indian tax residence can diverge because they are determined under separate rules. For example, someone who leaves India in June to take up employment in the UAE may be treated as a “person resident outside India” under FEMA from the time they leave, even if they remain an Indian tax resident for that financial year under the applicable Income-tax Act day-count rules. This is why an NRI label, UAE visa or type of bank account cannot, by itself, determine a person’s FEMA status.

The distinction matters because the Overseas Investment framework applies according to the investor’s FEMA residence when the investment is made. If you have recently moved between India and the UAE, confirm your position with a chartered accountant or Authorised Dealer bank before remitting funds rather than relying on the 182-day figure alone.

When owning a UAE company becomes an Overseas Direct Investment

Once you are a FEMA resident investing in a foreign company, that investment falls into one of two categories under the Foreign Exchange Management (Overseas Investment) Rules and Regulations, 2022: Overseas Direct Investment (ODI) or Overseas Portfolio Investment (OPI). The two are reported differently and carry different ongoing obligations, so getting the classification right matters before you send the first payment.

Why the “10% rule” you have read about does not apply to your Dubai company

For an unlisted foreign entity, acquiring any equity capital is treated as ODI. Most privately held UAE mainland and free-zone companies fall into this category, so the investment can be ODI whether the resident individual owns 2% or 100%.

The 10% threshold applies to equity in a listed foreign entity. An investment of at least 10% in a listed entity is ODI, as is a smaller investment that gives the investor control. Once an investment has been classified as ODI, it continues to be treated as ODI even if the holding later falls below 10% or control is lost.

Resident individuals are also subject to conditions on the type and structure of the foreign entity. In general, ODI may be made in an operating foreign entity that is not engaged in financial-services activity. Where the resident individual has control, restrictions also apply if the foreign entity has a subsidiary or step-down subsidiary. These points should be checked before choosing a multi-company or regulated-business structure.

How the money leaves India: LRS is the route, not the classification

The Liberalised Remittance Scheme (LRS) and the Overseas Investment framework are often described as if they were alternatives – LRS for individuals, ODI for companies. They are not alternatives. They answer two different questions. LRS governs how much money you, as a resident individual, can send out of India and through what process. The Overseas Investment Rules govern how the RBI classifies and tracks what you do with that money once it reaches the UAE. When you fund your own UAE company as an individual, you typically use both: LRS to remit the money, and the ODI framework to classify and report the investment.

The current LRS limit is USD 250,000 per resident individual per financial year, unchanged since 2015. It is a per-person ceiling, not a per-transaction or per-bank one – every LRS remittance you make in a financial year, for any purpose, is added together against that single cap. Most early-stage free zone investments sit comfortably within it, but if you are also using LRS for other purposes in the same year – a property purchase, a child’s education, travel – those draw down the same limit.

Allow for TCS when planning the remittance

One India-side cost worth knowing before you remit: banks currently collect Tax Collected at Source (TCS) at 20% on LRS remittances for investment purposes once your cumulative LRS remittances in the financial year cross ₹10 lakh, under Section 206C(1G) of the Income-tax Act, 1961, as amended by the Finance Act, 2025. This is a prepayment against your eventual tax liability, not an extra tax – you claim it back, or adjust it against tax due, when you file your return – but it does mean less cash reaches your UAE company upfront than you remitted. Ask your bank to confirm the current rate and threshold before you remit, since TCS rules are revised through the annual Finance Act and this article is not a substitute for checking the position at the time you send money.

The role of your Authorised Dealer bank

You do not file anything directly with the RBI. Every step – remitting the money, reporting the investment, and filing your annual return – goes through your Authorised Dealer (AD) Category-I bank, typically the Indian bank where you hold your primary account. The AD bank reviews your documentation, confirms the investment fits within the automatic route (the standard path that does not need prior RBI approval), and transmits the filing to the RBI on your behalf.

In practice, this makes your choice of AD bank and relationship manager more important than most founders expect. Not every branch handles outbound overseas investment filings routinely, and a relationship manager unfamiliar with the process can slow you down at exactly the point you are trying to move quickly on incorporation. It is worth confirming with your bank, before you remit, that they can process an ODI filing for a UAE company and roughly how long their internal process takes.

What gets filed, and when

Requirement	What it covers	Typical timing	Route
Form FC	Reports the investment and results in a Unique Identification Number (UIN) for the UAE company	At the time of the outward remittance or financial commitment, whichever is earlier	Through the designated AD bank
Evidence of investment	Share certificate or other document showing that the equity was issued or acquired	Within six months of the remittance or the date on which the amount became due for capitalisation	Submitted to the designated AD bank
Annual Performance Report (APR)	Reports the foreign entity’s annual financial performance against its UIN	Generally by 31 December each year; where the foreign entity’s accounting year ends on 31 December, by 31 December of the following year	Through the designated AD bank

The UIN your AD bank obtains for you at the Form FC stage becomes the permanent reference for that UAE company across every future filing – the APR, any additional capital you inject later, and eventual disinvestment if you ever sell or wind up the company. Exact internal timelines can vary slightly by bank, so treat the table above as the framework and confirm specific deadlines with your AD bank before you remit, rather than relying on a fixed day count from any single article, including this one.

The APR is the filing founders miss most often, because it is easy to treat company registration as a one-time event. It is not. It is due every year the foreign company exists, whether or not it has started trading, and it needs a chartered accountant’s certification rather than a self-declaration, since resident individuals do not have a statutory audit to point to instead.

If a filing is late

A missed reporting deadline is a compliance delay, but the RBI provides a Late Submission Fee (LSF) mechanism for eligible delayed filings. The amount depends on the type of report:

• For an APR, evidence of investment and other periodic reporting that does not capture a financial flow, the prescribed LSF is ₹7,500 per delayed return.
• For Form FC and other transactional reports that capture a financial or non-fund-based commitment, the formula is ₹7,500 plus 0.025% of the amount involved multiplied by the period of delay, as calculated under the RBI framework.

The LSF option is available for up to three years from the original due date. If a delayed filing is not submitted and regularised within the permitted framework, the person may face penal action under FEMA. Formal compounding may be relevant in cases that cannot be resolved through LSF or involve a wider contravention, so the correct route should be confirmed with the AD bank or a FEMA adviser.

What can a resident individual use to fund the company?

Resident individuals investing under the Overseas Investment Rules are restricted to equity. You can subscribe for or acquire shares in your UAE company, but you cannot, as an individual, extend a loan or a guarantee to a foreign entity – including one you own – under this framework. That facility is available to Indian companies investing in a foreign subsidiary, not to individuals. If you have been advised to fund a shortfall in your UAE company through a personal “loan” to it rather than a fresh equity subscription, that is not a route available to you as a resident individual, and it is worth raising directly with your CA before doing it.

If the UAE company requires additional capital, do not describe or transfer the amount as a shareholder loan without obtaining advice. Confirm whether it should be structured as a further equity subscription and how the additional investment must be reported.

Records to keep, and what to ask before you remit

Keep a complete record of the investment for as long as the UAE company is held. The main documents include:

• the UIN allotted to the foreign entity;
• Form FC submissions and acknowledgements;
• share certificates, subscription agreements or other evidence of investment;
• bank remittance advice for every transfer;
• APR submissions and acknowledgements; and
• correspondence with the AD bank about the investment and its classification.

Before the first remittance, ask the bank for its document checklist and internal processing timeline. If you have recently moved into or out of India, separately ask your chartered accountant to confirm your FEMA residence and review the investment structure.

How FEMA fits into the wider UAE setup process

FEMA governs the India-side investment and reporting process. UAE corporate tax, corporate banking and company formation follow separate rules.

For those areas, see our guides to UAE corporate tax for Indian founders, opening a UAE corporate bank account and the business setup process in Dubai from India.

If you are still comparing jurisdictions or deciding between a free-zone and mainland structure, you can also explore UAE business setup options. The FEMA remittance and reporting should be handled with your designated AD bank and an appropriately qualified Indian adviser.

None of the FEMA process above is a reason to avoid setting up a UAE company – it is a reason to sequence it correctly, with your AD bank and CA involved from the first remittance rather than brought in to fix something after the fact. If you are at the stage of choosing a free zone or mainland structure for the UAE side, explore UAE company setup options with myHQ. We help with the UAE-side formation and workspace; the India-side FEMA filing above is a job for your AD bank and chartered accountant.

Frequently asked questions