UAE LLC Liquidation & Repatriation to India: A Complete Tax & Compliance Roadmap

By CA Surekha S Ahuja

Scenario: A couple has set up a UAE LLC and now wishes to wind it up and bring the proceeds to India. What is the most legitimate way to do this, and what are the tax implications?

Navigating cross-border business closure and repatriation requires precise compliance under UAE company law, Indian FEMA regulations, Income Tax provisions, residential status rules, and the India-UAE DTAA. Here’s a step-by-step professional guide.

Part I: UAE LLC Liquidation Procedure

The UAE Federal Law No. 32 of 2021 (New Commercial Companies Law) governs the LLC liquidation process. Key stages include:

1. Board/Shareholder Resolution

   • Approve voluntary liquidation and appoint a licensed liquidator.

   • Notarization required (approx. AED 800).

2. Initial Approval Application

   • Submit to relevant authority (DED for mainland; Free Zone authority for JAFZA/RAK) with MOA, trade license, shareholder IDs, and liquidator letter.

   • Fee: ~AED 2,010 for mainland LLC.

3. Publication of Liquidation Notice

   • In two newspapers (Arabic & English) for minimum 45 days to allow creditor claims.

4. Creditor Notification & Settlement

   • Settle employee dues, supplier bills, utility obligations, and lease obligations.

5. Obtain Clearance Certificates (NOCs)

   • Telecom, utilities, Ministry of HR, Free Zone authority (if applicable), banks, property authorities.

6. Cancel Immigration Records

   • All employee and sponsor visas linked to company must be cancelled.

7. Final Audit Report

   • Liquidator prepares full Statement of Affairs including assets, liabilities, employee settlements, and cash balances.

8. Final Liquidation Certificate

   • Issued by DED/Free Zone authority confirming completion and trade license cancellation.

Timeline: Typically 60–90 days (including 45-day creditor period).

Part II: Taxation on Liquidation Proceeds in India

Capital Gains under Section 46 of the Income Tax Act

• Proceeds received on liquidation of a foreign company are taxed as capital gains in India under Section 46(2).

• Computation:

$$\text{Capital Gain} = \text{Money/Assets Received} - \text{Dividend component u/s 2(22)(c)} - \text{Cost of Acquisition of Shares}$$

• UAE LLC qualifies as a “company” under amended Section 2(17), making Section 46 fully applicable.

Short-Term vs Long-Term Capital Gains

• Unlisted foreign shares:

  • Holding ≤ 24 months → Short-term (taxed at slab rate).

  • Holding > 24 months → Long-term (concessional rate).

• Rates:

  • Residents (ROR/RNOR): Long-term 12.5%, Short-term at slab rate.

  • Non-Residents: Long-term 10% (no indexation), Short-term at slab rate.

Foreign Exchange Considerations

• Gains are computed in INR at the spot rate on distribution.

• No benefit for indexation or FX fluctuation for non-residents.

Part III: Residential Status & Tax Implications

1. Determining Residential Status (Section 6(1))

• Resident: ≥182 days in India OR ≥60 days in year + ≥365 days in preceding 4 years.

• ROR vs RNOR: ROR if 2/10 years residency + 730/7 years physical presence conditions met.

2. Tax Implications by Status

Residential Status	Capital Gains Tax (LTCG)	Global Income Taxable	DTAA Benefits
ROR	12.5% on unlisted shares	Yes	Yes (TRC required)
RNOR	12.5%	No	Yes (TRC required)
NR	10% (no indexation)	No	Yes (TRC required)

Key: Tax rate depends on residential status on liquidation distribution date.

Part IV: India-UAE DTAA Considerations

1. Article 13 – Capital Gains:

   • Capital gains from UAE company shares are taxable in UAE (country of incorporation).

   • UAE has 0% personal income tax, making gains potentially tax-free if TRC obtained.

2. Limitation of Benefits (LOB) & Principal Purpose Test (PPT):

   • DTAA benefits denied if the LLC was created mainly for tax advantage without genuine business activity.

   • Maintain economic substance: employees, office, transactions.

3. UAE Tax Residency Certificate (TRC):

   • Present ≥183 days in UAE calendar year.

   • Apply via EmaraTax portal, valid 1 year.

4. Form 10F Filing in India:

   • Mandatory if claiming DTAA benefit.

   • Disclose personal details, UAE TIN (if any), address, income type, and attach TRC.

Part V: Repatriation under FEMA

• Proceeds from liquidation: Considered capital inflow under FEMA regulations.

• Compliant route:

  1. Obtain UAE liquidation certificate.

  2. Open FCNR/NRE/NRO account in India (as per FEMA).

  3. Submit Repatriation request with bank including liquidation certificate, board resolution, and bank statement from UAE.

• Ensure tax compliance in India (TDS / self-assessment) before repatriation to avoid defaults.

Key Takeaways for Practitioners

• Liquidation must strictly follow UAE law to obtain valid certificate.

• Residential status and holding period determine Indian tax rates.

• Proper TRC & Form 10F filings unlock DTAA benefits and prevent double taxation.

• Maintain genuine economic substance to avoid LOB/PPT challenges.

• FEMA-compliant repatriation ensures smooth inflow into India.

Professional Note: Cross-border liquidation and repatriation require meticulous documentation, sequential compliance, and tax planning. Missing any step—be it UAE NOCs, residential status certification, or DTAA filings—can lead to default notices or tax disputes.