Introduction
The relationship between the United Arab Emirates (UAE) and India has grown into one of the most dynamic trade and investment partnerships in recent years. Businesses from both countries are increasingly collaborating in sectors such as infrastructure, renewable energy, fintech, healthcare, logistics, and technology. For Indian companies, the UAE serves as a gateway to the Middle East, Africa, and beyond. For UAE companies, India provides access to one of the largest and fastest-growing consumer markets in the world.
While the opportunities are significant, structuring a joint venture or partnership across two legal systems requires careful planning. Understanding the regulatory, contractual, and practical considerations in both jurisdictions is essential for success. This article explores the key legal aspects that UAE and Indian businesses should keep in mind when forming cross-border joint ventures and partnerships.
Choosing the Right Structure
The first step is to decide on the legal structure of the collaboration. In the UAE, the main options are:
- Limited Liability Company (LLC): This is the most common vehicle for joint ventures. An LLC provides limited liability to shareholders and allows for flexibility in structuring management and profit-sharing.
- Free Zone Entity: The UAE has more than 40 free zones that allow 100 percent foreign ownership. These entities are popular for businesses focused on international trade, services, or technology. However, free zone entities have restrictions when it comes to directly doing business in the UAE mainland without a local distributor or branch.
- Branch or Representative Office: An Indian company can set up a branch in the UAE to carry out the same activities as its parent. A representative office, on the other hand, is limited to marketing and liaison functions.
- Contractual Joint Venture: Instead of creating a new legal entity, parties can enter into a contractual agreement to collaborate on specific projects. This is common in construction, infrastructure, and services sectors.
The choice depends on the sector, commercial objectives, tax implications, and the level of operational presence required.
This blog is a part of our Investment Funds in the UAE: A Complete Guide to Structuring, Regulation, and Opportunities Blogpost.
Ownership and Control
Ownership rules in the UAE have undergone significant reforms in recent years. Earlier, foreign investors needed a UAE national partner holding at least 51 percent shares in an LLC on the mainland. Today, in many sectors, 100 percent foreign ownership is permitted. However, some strategic sectors such as oil and gas, utilities, and transport still require local participation.
Indian businesses must therefore check the specific rules applicable to their sector before deciding the ownership split. Even when 100 percent foreign ownership is possible, some partners may prefer to include a UAE national partner for strategic reasons such as government relations, market access, and credibility.
Control mechanisms should also be clearly defined in the joint venture agreement. This includes voting rights, management roles, reserved matters, and veto powers. It is not uncommon for ownership and control to differ; for instance, one partner may hold a minority share but still enjoy significant say in management decisions through contractual protections.
Profit Sharing and Capital Contributions
One of the most sensitive issues in any joint venture is profit sharing. In the UAE, profits and losses can be distributed in a manner different from the shareholding ratio, provided it is clearly agreed in the memorandum of association or joint venture agreement.
For example, an Indian company may bring in technology and know-how while a UAE partner contributes capital or market access. The parties can agree to share profits in proportion to the value of these contributions rather than their equity holdings.
Capital contributions can be in the form of cash, assets, or in-kind contributions such as intellectual property. Where in-kind contributions are involved, the law may require valuation and approval by authorities to ensure fairness and compliance.
Regulatory Approvals and Licensing
Both the UAE and India have sector-specific regulations that may require prior approval before a joint venture can commence operations.
In the UAE, companies must obtain licenses from the Department of Economic Development (DED) in the mainland or from the relevant free zone authority. In regulated sectors such as banking, insurance, healthcare, and telecommunications, approvals from specialized regulators are also mandatory.
On the Indian side, foreign direct investment (FDI) rules need to be reviewed. While many sectors allow automatic approval of foreign investment, certain areas such as defense, media, and insurance require government approval. The Reserve Bank of India (RBI) and the Department for Promotion of Industry and Internal Trade (DPIIT) play key roles here.
Businesses should engage with legal and regulatory experts early to avoid delays and ensure compliance with all licensing requirements.
Governing Law and Dispute Resolution
When parties from two different jurisdictions come together, it is vital to decide which law will govern their relationship and how disputes will be resolved.
Common practice is to choose a neutral governing law such as English law for the joint venture agreement, while the entity itself is subject to UAE corporate law. Alternatively, if the entity is based in India, Indian law may apply.
Dispute resolution is usually through arbitration rather than court litigation, given the cross-border nature of the relationship. The UAE is a signatory to the New York Convention, which means arbitral awards can be enforced in many countries including India. Popular arbitration centers include the Dubai International Arbitration Centre (DIAC), Abu Dhabi Global Market Arbitration Centre, and Singapore International Arbitration Centre (SIAC).
Parties should also include clear provisions for mediation and escalation before resorting to arbitration to preserve the business relationship.
Intellectual Property Protection
Indian businesses often bring technology, know-how, or brand value into a UAE partnership. Protecting intellectual property (IP) is therefore crucial.
IP rights must be registered in the UAE to enjoy protection. For example, trademarks registered in India are not automatically protected in the UAE. Businesses should file trademark and patent applications in the UAE before commencing operations.
Confidentiality agreements, non-compete clauses, and careful structuring of licensing arrangements are also important to safeguard IP. The joint venture agreement should clarify who owns any IP created during the partnership.
Employment and Immigration Matters
The UAE has its own labor laws that apply to employees working in the country. Even if an Indian partner seconded employees from India, those employees must have valid UAE work permits and residence visas.
The joint venture must also comply with Emiratisation policies, which require a certain percentage of UAE nationals to be employed in specific sectors.
Employee contracts, benefits, and termination procedures are subject to UAE law. It is important for Indian businesses to familiarize themselves with these requirements to avoid disputes and penalties.
Taxation Considerations
One of the attractions of the UAE is its favorable tax regime. While the country has introduced corporate tax recently (at a standard rate of 9 percent), it remains competitive compared to many other jurisdictions. Free zones may offer tax holidays or exemptions, subject to conditions.
The Double Taxation Avoidance Agreement (DTAA) between India and the UAE provides further relief. It ensures that businesses are not taxed twice on the same income and provides mechanisms for crediting taxes paid in one country against liabilities in the other.
Indian companies must also consider the tax impact of repatriating profits from the UAE. Dividend distribution, royalty payments, and management fees should be structured in a tax-efficient manner.
Exit Strategies
Every joint venture should have a clear exit plan from the beginning. Situations may arise where one partner wants to withdraw, sell their stake, or where the venture no longer serves its purpose.
Common exit mechanisms include:
- Buy-out clauses allowing one partner to purchase the other’s stake.
- Drag-along and tag-along rights to protect minority or majority shareholders.
- Put and call options providing flexibility in exiting under agreed terms.
- Winding up the entity if the project is completed or the business is no longer viable.
Having these mechanisms in place helps avoid disputes and provides certainty in case the partnership does not work out as expected.
Cultural and Practical Considerations
Beyond legal and regulatory issues, cultural understanding plays a huge role in the success of joint ventures. The UAE business environment values trust, long-term relationships, and respect for local customs. Indian businesses should invest time in building rapport with Emirati partners and adapting to local business etiquette.
Decision-making processes may differ, and patience is often needed. It is advisable to have bilingual documentation where relevant, and to engage advisors who understand both Indian and UAE markets.
Conclusion
Joint ventures and partnerships between UAE and Indian businesses offer tremendous potential. The UAE provides Indian companies with access to global markets, world-class infrastructure, and a favorable business environment. For UAE partners, Indian collaborations open doors to a vast consumer base and a diverse talent pool.
However, success depends on navigating the legal landscape with care. From choosing the right structure and ensuring compliance with ownership rules, to protecting intellectual property and planning exit strategies, every step requires attention to detail.
Engaging experienced legal advisors in both jurisdictions is not just advisable but essential. A well-structured joint venture can serve as a powerful bridge between the UAE and India, creating sustainable growth and mutual benefits for years to come.
