Payroll Services for UAE Companies in India
The UAE is among India's top five trading partners, with bilateral trade exceeding $85 billion annually. The India-UAE Comprehensive Economic Partnership Agreement (CEPA), which came into force in May 2022, has accelerated investment flows, with UAE companies establishing Indian subsidiaries across sectors including real estate, financial services, logistics, energy, and technology.
Every UAE entity that hires employees in India must operate a fully compliant Indian payroll. This is a significant transition for UAE companies, given that the UAE itself has no personal income tax and a relatively streamlined payroll system centred on the Wage Protection System (WPS). Indian payroll, by contrast, involves multiple statutory contributions — Employees' Provident Fund (EPF), Employee State Insurance (ESIC), Professional Tax, Tax Deducted at Source (TDS), gratuity, and Labour Welfare Fund — each with separate authorities, registration requirements, and penalty regimes.
India's four new Labour Codes, which took effect in November 2025, consolidated 29 legacy laws, introduced the mandatory 50% basic pay rule, expanded social security coverage, and imposed strict two-day final settlement timelines. For UAE companies accustomed to a zero-income-tax, WPS-based payroll model, India's regulatory complexity demands specialized local expertise.
BeaconFiling provides comprehensive payroll processing services specifically designed for UAE-owned Indian entities, ensuring full statutory compliance from day one.
How the India-UAE DTAA Affects Payroll
The India-UAE DTAA, signed on 29 April 1992 and in force since 22 September 1993 with a 2007 protocol update, has a distinctive feature that makes it particularly favourable for UAE companies providing payroll and management services to Indian subsidiaries.
No Separate Article on Fees for Technical Services
Unlike most Indian DTAAs, the India-UAE treaty does not contain a separate article on Fees for Technical Services (FTS). This is a significant advantage: in the absence of an FTS clause, payments made by an Indian subsidiary to a UAE parent for payroll management, HR services, or management consultancy cannot be subjected to withholding tax in India — provided the UAE company does not have a permanent establishment (PE) in India. This eliminates the 10-15% withholding tax that would apply under treaties with most other countries.
Employment Income Taxation (Article 15)
Salaries and wages earned by UAE nationals working in India are fully taxable in India at progressive rates (5% to 30% plus surcharge and 4% cess). Since the UAE has no personal income tax, the DTAA's relief mechanism works one-directionally: taxes paid in India cannot be offset against UAE tax liability (because there is none). This makes India the sole point of taxation for UAE expatriates working in India.
Permanent Establishment Risk
While the absence of an FTS article is advantageous, UAE companies must be careful not to create a PE in India through their payroll or management arrangements. If the Indian subsidiary's decision-making authority rests with UAE-based personnel, or if UAE employees exercise habitual authority to conclude contracts in India, a PE may be triggered — exposing the UAE company to Indian corporate tax on profits attributable to the PE. Proper structuring of intercompany agreements is essential.
No Bilateral Social Security Agreement
India and the UAE do not have a bilateral Social Security Agreement. UAE employees on Indian payroll must contribute to Indian EPF (12% of basic wages for both employer and employee) regardless of any UAE end-of-service gratuity entitlements. This creates an additional cost for UAE companies deploying expatriates to India.
Document Requirements from the UAE
The UAE is not a member of the Hague Apostille Convention. Documents must be authenticated through embassy attestation — a multi-step process involving notarization, UAE Ministry of Foreign Affairs attestation, and Indian Embassy attestation in Abu Dhabi or the Indian Consulate in Dubai.
Documents for Payroll Setup
- Trade License of the UAE parent entity — attested by UAE MOFA and Indian Embassy/Consulate for entity verification during EPF and ESIC registration
- Certificate of Incorporation or Commercial Registration — embassy-attested copy
- Board Resolution authorizing appointment of an Indian payroll service provider — notarized and embassy-attested
- PAN and TAN (Tax Deduction Account Number) of the Indian entity — mandatory before first salary disbursement
- Intercompany service agreement for payroll recharges — required for transfer pricing documentation, even though FTS withholding may not apply
- Employee details: offer letters, PAN cards, Aadhaar numbers, bank account details, and previous employer Form 16
Ongoing Documentation
- Tax Residency Certificate (TRC) from UAE's Federal Tax Authority — essential for claiming treaty benefits, particularly the no-FTS advantage
- Form 10F — self-declaration filed with Indian tax authorities
- Digital Signature Certificate (DSC) — for authorized signatories filing EPF, ESIC, and TDS returns
- Evidence of no PE in India — intercompany agreements and operational documentation supporting the absence of a PE
Step-by-Step Payroll Setup Process
Step 1: Statutory Registrations
Register with EPFO (EPF establishment code — mandatory for 20+ employees), ESIC (employer code — mandatory for 10+ employees), Income Tax Department (TAN for TDS), state Professional Tax authority, and Shops and Establishment Act in each operating state. Read our blog on setting up payroll from day one.
Step 2: CTC Structure Design
Design salary structures compliant with the 50% basic pay rule under the new Labour Codes. UAE companies transitioning from a zero-income-tax payroll model must understand that Indian employees' take-home pay is significantly reduced by TDS (5-30%), EPF (12% employee share), ESIC (0.75%), and Professional Tax deductions. CTC structures must be designed to ensure competitive net pay while maintaining full statutory compliance. Read about salary benchmarks for foreign companies in India.
Step 3: Monthly Payroll Processing
Calculate gross salary, apply statutory deductions (EPF employee share at 12% of basic + DA, ESIC at 0.75% for employees earning up to INR 21,000/month, TDS per income tax slab rates, Professional Tax per state), compute employer contributions (EPF at 12%, ESIC at 3.25%, LWF per state), and disburse net salary by the 7th of the following month.
Step 4: Monthly and Quarterly Filings
Deposit TDS by the 7th, EPF and ESIC by the 15th of the following month. File quarterly TDS returns (Form 24Q). File monthly EPF returns (ECR) and ESIC returns. Late deposits attract 12% interest for EPF and penalties up to INR 3 lakh. Read our guides on the EPFO portal and ESIC portal.
Step 5: Year-End Compliance
Issue Form 16 (TDS certificates) to all employees by June 15. File annual EPF and ESIC returns. Compute and provision for gratuity liability. Unlike the UAE's end-of-service gratuity (EOSB) system which is a lump-sum based on years of service, India's gratuity under the Payment of Gratuity Act is calculated at 15 days' last drawn wages for every completed year of service, payable after one year for fixed-term employees under the new codes. Read about compliance deadlines foreign companies miss.
Timeline & Costs
Setup Timeline
| Activity | Duration |
|---|---|
| Document attestation (UAE MOFA + Indian Embassy) | 7-14 business days |
| PAN and TAN registration | 5-7 business days |
| EPF registration | 5-10 business days |
| ESIC registration | 3-5 business days |
| Professional Tax registration | 3-7 business days |
| CTC structure design | 3-5 business days |
| Payroll software configuration | 2-3 business days |
| First payroll run | Within 10 business days of month-end |
Cost Breakdown
| Service | Approximate Cost |
|---|---|
| Payroll setup (one-time) | INR 10,000 - 50,000 (~AED 440-2,200) |
| Monthly payroll processing (per employee) | INR 300 - 800/month (~AED 13-35) |
| Statutory compliance (EPF/ESIC/PT filing) | INR 3,000 - 10,000/month (~AED 132-440) |
| TDS return filing | INR 2,000 - 5,000/quarter (~AED 88-220) |
| Expatriate payroll (per expat) | INR 5,000 - 15,000/month (~AED 220-660) |
| Full managed payroll + HR support | INR 800 - 2,500/employee/month (~AED 35-110) |
The additional time for embassy attestation (vs. apostille for Hague Convention countries) adds 1-2 weeks to the initial setup timeline but does not affect ongoing payroll processing costs.
Common Challenges for UAE Companies
Transition from Zero-Tax to Multi-Tax Payroll
UAE companies are accustomed to a payroll environment with no personal income tax, no social security contributions (until the recent UAE unemployment insurance scheme), and relatively simple WPS-based salary processing. Indian payroll's multiple tax and contribution layers — TDS, EPF, ESIC, Professional Tax, LWF, and gratuity — represent a fundamental shift in complexity. UAE HR teams often underestimate the administrative burden. Read our blog on India's new Labour Codes for foreign employers.
Embassy Attestation vs. Apostille
Since the UAE has not joined the Hague Apostille Convention, every document requires the more cumbersome embassy attestation process: notarization in the UAE, attestation by the UAE Ministry of Foreign Affairs, and then attestation by the Indian Embassy or Consulate. This adds both time and cost compared to apostille-based authentication available to US, UK, and Singapore companies.
Gratuity System Differences
The UAE's End of Service Benefit (EOSB) and India's statutory gratuity differ significantly. UAE EOSB is calculated at 21 days' basic salary per year for the first five years and 30 days per year thereafter. India's gratuity is 15 days' last drawn wages per year of service, with a statutory maximum of INR 20 lakh for private-sector employees. Under the new codes, fixed-term employees qualify after one year (vs. five years earlier). UAE companies must maintain separate gratuity provisions for their Indian workforce.
PE Risk from Payroll and Management Arrangements
The India-UAE DTAA's absence of an FTS article is a significant advantage, but it comes with a responsibility: UAE companies must ensure their Indian operations do not create a permanent establishment. If UAE-based managers routinely make binding decisions for the Indian subsidiary, or if UAE employees habitually conclude contracts in India, a PE could be triggered. Read our blog on transfer pricing mistakes that trigger audits.
Currency and Remittance Compliance
Salary payments to Indian employees must be made in Indian Rupees through Indian banking channels. Intercompany fund transfers for payroll funding from UAE to India must comply with FEMA regulations — the purpose code must accurately reflect the nature of the remittance (payroll funding vs. capital infusion vs. service fee). Read our FEMA compliance guide for foreign companies.
Why Choose BeaconFiling
BeaconFiling specializes in payroll services for UAE-owned Indian entities. Our team handles the transition from zero-tax to multi-tax payroll, designs compliant CTC structures, processes monthly payroll with all statutory deductions and contributions, manages EPF/ESIC/TDS/PT filings, and provides expatriate payroll support. We understand the India-UAE DTAA's unique no-FTS provision and help structure intercompany arrangements to preserve this advantage while avoiding PE risk.
Schedule a free consultation to discuss your Indian subsidiary's payroll needs, or explore our payroll processing service for a complete overview.