Law regarding registering an offshore business while residing in India

Great question! Setting up an offshore business in Dubai while residing in India involves both Indian and UAE regulations. Here's a detailed overview of the legalities:

1. Is it legal to register an offshore business abroad while residing in India?

• Yes, it is legal for an Indian resident to set up an offshore company in Dubai or any other foreign country.

• The Indian government does not prohibit Indian residents from having foreign businesses or bank accounts.

• However, you must comply with Indian tax and foreign exchange regulations, and fully disclose your foreign assets and income.

2. Key compliance and reporting requirements under Indian laws:

• FEMA (Foreign Exchange Management Act):

  • You can freely remit money abroad for business purposes under the Liberalized Remittance Scheme (LRS) with a limit of USD 2,50,000 per financial year for individuals.

  • For business investments, different rules apply, and approvals may be needed depending on the nature and amount of investment.

  • You should inform the Reserve Bank of India (RBI) as required and file the necessary declarations.

• Income Tax Act:

  • You must disclose the offshore company in your Income Tax Return (ITR) under the Schedule of Foreign Assets and Liabilities.

  • Income earned through the offshore company or salary paid to you must be reported and taxed in India.

  • If your company is controlled or managed from India (e.g., decisions taken from India), it might be considered a resident company in India for tax purposes.

  • Transfer pricing regulations may apply if the offshore company transacts with Indian entities.

• Foreign Assets Disclosure:

  • Indian residents must disclose details of foreign bank accounts, financial interests in foreign entities, and foreign assets under the Income Tax Act (Schedule FA).

  • Non-disclosure can attract heavy penalties.

3. Transferring money from Dubai to India

• Repatriation of funds from your Dubai bank account to your Indian bank account is allowed.

• However, funds received must be from legitimate business income or investments, and you need to keep proper documentation.

• The money transferred into India is subject to Indian tax laws, i.e., income tax on profits or dividends you bring in.

• You should file a Form 15CA/15CB when repatriating large sums to certify the tax compliance.

4. Other considerations

• GST and indirect taxes: If your offshore company provides services to Indian clients or you provide services from India, GST laws may apply.

• Double Taxation Avoidance Agreement (DTAA): India and UAE have a DTAA, which helps avoid double taxation on the same income.

• Employee location: Since your employees are working from India, you need to comply with Indian labor laws and payroll tax requirements.

Summary