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For EU founders, India often emerges as a natural operational base for their expansion. The decision is rarely driven by sentiment. Instead, it is shaped by talent density, digital scale, and access to one of the world’s fastest-growing consumer markets. Yet, as physical presence and management shift toward India, tax residency questions surface quickly, often before commercial momentum fully settles.
What follows is usually not just one tax system exerting control, but two. Indian domestic law may classify a founder or company as resident, while the home EU jurisdiction continues to assert taxing rights under its own rules. The resulting overlap is where double taxation risk arises, and where Double Taxation Avoidance Agreements (DTAAs) and treaty tie-breaker rules quietly determine whether expansion remains efficient or becomes administratively fragile.
India determines individual tax residency primarily through physical presence. An individual is treated as a resident if either of the following conditions is met during a financial year:
For high-income visitors with Indian-sourced income exceeding Rs. 15 lakhs, the 60-day threshold is extended to 120 days. This adjustment has particular relevance for EU founders who divide their time between operational oversight in India and strategic control from Europe.
Residents are subject to tax on global income, while non-residents are taxed only on income sourced or deemed to arise in India. This distinction becomes critical for founders earning overseas dividends, stock-based compensation, or capital gains alongside India-linked remuneration. The Income Tax Bill 2025 has retained these residency thresholds without structural change, providing continuity for ongoing cross-border planning.
For companies, India applies the Place of Effective Management (POEM) test to determine tax residence status of foreign-incorporated entities. A company may be treated as an Indian tax resident if key management and commercial decisions are, in substance, made from India.
In practice, this analysis examines where board meetings occur, where strategic and financial decisions are taken, and where senior management exercises control. EU founders who actively manage overseas holding companies while residing in India, or who centralize decision-making through Indian executive teams, must assess POEM exposure carefully. The test is fact-driven and focuses on substance rather than legal form.
India has comprehensive Double Taxation Avoidance Agreements with 21 EU member states, including Germany, France, Netherlands, Ireland, Italy, Belgium, and Luxembourg. These treaties allocate taxing rights between jurisdictions and often reduce withholding tax on outbound payments such as dividends, interest, royalties, and fees for technical services.
These provisions carry practical importance. Cumulative EU foreign direct investment into India reached approximately USD 105.7 billion between April 2000 and September 2023, accounting for about 16.1 percent of total inflows. Much of this investment flows through jurisdictions such as the Netherlands, Germany, and France, where treaty benefits materially affect capital efficiency.
| EU Country | Dividend WHT | Interest WHT | Royalty WHT |
|---|---|---|---|
| Germany | 10% | 10% | 10% |
| France | 10% | 10% | 10% |
| Netherlands | 10% | 10% | 10% |
| Belgium | 15% | 15% or 10% for banks | 10% |
| Italy | 15% or 10% with qualifying stake | 15% | 20% |
Access to these rates generally requires a valid tax residency certificate and prescribed disclosures at the time of payment.
Situations frequently arise where an EU founder qualifies as a resident under both Indian law and the law of an EU country. In such cases, treaty tie-breaker rules determine which country will be treated as the resident state for treaty purposes.
For individuals, tie-breakers are applied sequentially:
In practice, the centre of vital interests test often becomes decisive. A founder may operate daily from Mumbai while maintaining family ties, financial assets, and long-term personal connections in Berlin or Amsterdam. Where evidence supports stronger ties to one jurisdiction, treaty residence follows, preventing double taxation of the same income.
For companies, treaties typically rely on the place of incorporation or effective management, with mutual agreement mechanisms available where ambiguity persists. Most India-EU treaties align closely with the OECD model convention, lending predictability to outcomes when facts are well documented.
Foreign companies are subject to corporate tax in India at a base rate of 40 percent from assessment year 2025-26 on business profits, with 35 percent applicable to specific categories such as shipping and aircraft income, and higher rates of 50 percent for certain legacy royalty streams. Domestic companies benefit from concessional regimes ranging between 22 and 30 percent, depending on elections made under Indian tax law.
Outbound payments such as royalties, interest, and technical service fees are subject to withholding, often reduced under applicable DTAAs. Credits for Indian taxes paid are typically available in the EU home jurisdiction, mitigating economic double taxation.
India has also simplified incorporation and compliance for foreign shareholders. Company registration can be completed remotely, with the requirement that at least one director qualifies as an Indian resident based on physical presence of 182 days or more.
EU investment in India continues to concentrate in technology, manufacturing, renewable energy, and digital services. In 2019 alone, EU FDI inflows reached approximately USD 7.85 billion, led by the Netherlands, Germany, and Belgium. More recently, FY 2024-25 recorded total FDI equity inflows of USD 81.04 billion, reflecting sustained cross-border investor confidence.
India now hosts the world’s third largest startup ecosystem, with over 50,000 recognized startups. For EU founders operating within this environment, tax clarity is not peripheral. It underpins investor confidence, determines repatriation efficiency, and shapes long-term structuring decisions across jurisdictions.
Months after operations stabilize in Bengaluru or Gurugram, most EU founders recognize that the real value of tax treaties lies not merely in reduced rates, but in predictability. Residency rules, when understood early, shift from latent risk to manageable parameters. Tie-breaker provisions ensure that commercial success is not quietly eroded by overlapping tax claims across borders.
As businesses scale across India and Europe, compliance increasingly functions as an enabling framework rather than a constraint. Clear documentation, consistent decision-making structures, and informed treaty positions allow founders to focus on innovation and execution, confident that fiscal alignment supports sustainable global growth.
