Opening a foreign subsidiary is easy to describe on an organisation chart.

Building a functioning cross-border operating model is considerably harder.

PhonePe’s latest UAE development is a useful illustration. On 22 September 2026, the Indian payments company announced that it had received in-principle approval from the Central Bank of the UAE for Retail Payment Services and Card Schemes and Stored Value Facilities licences. The approval follows initial regulatory due diligence, but PhonePe still needs to satisfy the remaining requirements and obtain final CBUAE approval before commencing regulated commercial operations. PhonePe

PhonePe describes this as its first international operating footprint. Yet it already facilitates payments by Indian travellers at UAE merchants through existing cross-border arrangements with NPCI International and local networks. The new development is therefore strategically different: it is about moving from serving customers across a border to establishing a locally regulated operating business inside another jurisdiction. Middle East News 247

That distinction carries a much wider lesson for founders and CFOs.

A foreign subsidiary is a legal vehicle. A foreign operating model is a regulatory, tax and value-chain decision.

The Licence Often Determines the Structure Before Tax Does

In an ordinary overseas expansion, founders may initially ask whether to establish a branch, wholly owned subsidiary, joint venture or regional holding company.

In regulated financial services, the regulator can narrow those choices considerably.

Under the UAE Retail Payment Services and Card Schemes framework, an applicant must be a juridical person incorporated in the UAE. The CBUAE regime then imposes licensing conditions relating to legal form, initial capital, governance and ongoing regulatory requirements. Stored Value Facilities are similarly licensed activities, and the applicant must be incorporated in the UAE, including an eligible free zone but excluding Financial Free Zones for this purpose. Rulebook

PhonePe’s own IPO filing is instructive. It disclosed that PhonePe Middle East FZ-LLC was incorporated on 31 October 2025, while the relevant licence applications had initially been filed on behalf of the proposed entity. PhonePe

This illustrates a principle that applies well beyond fintech.

When entering banking, insurance, payments, healthcare, telecom, asset management or another regulated industry, the licensing architecture should normally be designed before the tax structure is finalised.

Tax follows the business model. It should not manufacture one that the regulator will not permit.

Where Should the Technology and IP Sit?

PhonePe says its proposed UAE deployment will leverage the technology platform it has developed while operating at significant scale in India, and that it intends to integrate with regional banks, payment-service providers and local technology vendors. Middle East News 247

That immediately raises the kind of international tax question global technology companies face when expanding:

Who owns the platform?

Who owns UAE-specific modifications?

Who funds product localisation?

Who controls technology development?

Who bears cybersecurity, product, regulatory and commercial risks?

And how should the UAE entity pay for access to technology developed elsewhere?

The OECD Transfer Pricing Guidelines make clear that legal ownership of an intangible does not, by itself, determine entitlement to all of the associated economic returns. The analysis must consider the functions performed, assets used and risks assumed, including activities connected with the development, enhancement, maintenance, protection and exploitation of intangibles. OECD

The practical implication is important.

If an Indian parent provides a mature technology platform and the UAE company merely localises and commercially deploys it under close group direction, one transfer pricing model may be appropriate.

If, over time, the UAE operation builds substantial product capability, makes strategic technology decisions, develops locally valuable intangibles or controls significant commercial risks, that model may need to evolve.

The transfer pricing policy should therefore be designed for how the business is expected to develop, not merely how it looks on launch day.

The UAE Entity Cannot Simply Be Treated as a Booking Centre

The UAE now has a substantive corporate tax and transfer pricing framework.

Ordinary taxable persons are generally subject to 0% corporate tax on taxable income up to AED 375,000 and 9% on taxable income above that threshold, subject to the detailed Corporate Tax Law. Qualifying Free Zone Persons can potentially benefit from 0% on qualifying income, but only where the applicable statutory conditions are satisfied. وزارة المالية - الإمارات العربية المتحدة

More importantly for multinational groups, UAE transfer pricing rules apply to transactions with Related Parties and Connected Persons whether those parties are in the UAE or overseas. The UAE Federal Tax Authority expressly expects related-party dealings to satisfy the arm’s-length principle. FTA UAE

India imposes the corresponding discipline from the other side. Section 161 of the Income-tax Act, 2025 requires income, expenditure and interest arising from international transactions to be determined having regard to the arm’s-length price. Etds

That means an India-UAE expansion can create multiple intercompany transactions from day one: technology licences, development services, management support, employee secondments, financing, guarantees, marketing support and perhaps platform or transaction-processing services.

Each requires an economic rationale.

Simply allocating a low margin to whichever entity happens to sit in the lower-tax jurisdiction is not a sustainable operating model.

Capital Funding Is a Separate FEMA Decision

For an Indian group establishing and funding an overseas subsidiary, the tax structure is only one layer.

India’s Overseas Investment framework treats acquisition or subscription of unlisted foreign equity as Overseas Direct Investment. Where an Indian entity also provides shareholder debt or guarantees, additional conditions apply. In particular, debt financing generally requires the Indian entity to have made ODI and acquired control in the foreign entity, and related-party loans must carry an arm’s-length rate of interest. Guarantees and other non-fund commitments also form part of the FEMA financial-commitment framework. Reserve Bank of India

This creates a practical funding question before overseas operations scale:

Should the UAE entity be funded entirely through equity?

Should part of the funding be shareholder debt?

Will the local regulated business itself borrow?

Does it need a parent guarantee?

The answer affects not only FEMA compliance but also regulatory capital, transfer pricing, interest deductions, cash repatriation and future refinancing.

Funding should therefore be designed alongside the regulatory licence, rather than added after incorporation.

People Can Create Risk Before the Overseas Business Is Fully Built

International expansion often begins before the formal structure is complete.

Indian employees travel frequently to the UAE. Senior executives negotiate with banks and partners. Technology teams undertake implementation work. Commercial teams may begin market-development activity.

That creates another question: which entity is actually conducting the business?

Under the India-UAE tax treaty, a permanent establishment includes a fixed place through which an enterprise carries on business. The treaty also contains a service-PE provision where services are furnished through employees or other personnel in the other country for the same or connected project for periods aggregating more than nine months in any twelve-month period. It separately contains an agency-PE rule where a person habitually exercises authority to conclude contracts on behalf of the enterprise. Income Tax India

That does not mean every employee trip creates a PE.

It means founders should not assume that incorporation date and tax-presence date are necessarily identical.

Who travels, what they do, which entity directs them and who signs commercial agreements should be monitored during the build-out phase.

Profit Should Follow the Operating Reality

Suppose an Indian fintech establishes a UAE entity.

Initially, India owns the technology, performs core product development and controls the major risks. The UAE company employs a local commercial and compliance team, contracts with UAE customers and operates under the local licence.

An arm’s-length model might therefore compensate the UAE business for its local functions and regulatory responsibilities while India retains returns connected with technology and other functions genuinely performed there.

But now imagine the UAE operation grows into a regional Middle East hub.

It employs senior product personnel, controls regional strategy, develops important platform adaptations, manages material regulatory risks and expands into multiple Gulf markets.

The original transfer pricing model should not remain frozen merely because it was correct in year one.

This is the central cross-border structuring lesson:

Profit allocation should follow how the business actually evolves, not the organisation chart created before launch.

Cash Repatriation Should Be Planned Before Profits Arrive

Eventually, the foreign operation becomes profitable.

How should cash return to the parent?

Dividends are one possibility. Interest may arise where shareholder debt exists. Royalties may apply where technology is licensed. Management or technology-service charges may also exist.

Each flow can create different corporate tax, withholding, treaty and transfer pricing outcomes.

The India-UAE treaty includes rules dealing with business profits, dividends, interest and royalties and has been modified through the Multilateral Instrument to include anti-abuse protections. For example, royalties may be taxed in the source state subject to the treaty's conditions and maximum rate, while business profits generally require consideration of whether a permanent establishment exists. Income Tax India

The point is not that one repatriation route is universally better.

It is that the future cash-flow model should be understood when the structure is established, rather than designed only after substantial profits accumulate.

The Broader Lesson From PhonePe’s UAE Move

PhonePe’s specific UAE operating and transfer pricing arrangements are not public, and its in-principle approval should not be treated as final authorisation. The company remains in the process of completing regulatory prerequisites before commercial launch. PhonePe

But the development provides a useful framework for any founder taking a regulated business overseas.

The real questions are interconnected:

Which entity should hold the licence?

Where should technology and IP sit?

Who should employ the people?

Who controls regulatory and commercial risks?

How should the parent fund the overseas operation?

How should related-party transactions be priced?

Could pre-launch activities create tax presence?

And how will profits eventually return to shareholders?

If those questions are answered independently, the structure can become internally inconsistent.

If they are answered together, regulation, tax and commercial operations can reinforce one another.

Closing Perspective

Going global is often celebrated when the overseas entity is incorporated.

For regulated businesses, that is closer to the beginning than the end.

The licence defines what the entity can do. The people determine where activity actually occurs. Transfer pricing determines how value is remunerated. FEMA influences how capital leaves India. Treaty rules affect cross-border income flows. Corporate tax and substance determine whether the structure remains defensible once the operation grows.

PhonePe’s UAE expansion is therefore a useful reminder for founders looking beyond their home market:

International expansion is not about putting a subsidiary in another country. It is about designing an operating model that can survive regulation, tax scrutiny and commercial growth at the same time.

That work is easiest before the first major transaction takes place.

Research basis

This article has been prepared using PhonePe’s 22 September 2026 announcement and public IPO filing, the Central Bank of the UAE’s Retail Payment Services and Card Schemes and Stored Value Facilities regulations, UAE Ministry of Finance and Federal Tax Authority guidance, India’s FEMA Overseas Investment framework, the Income-tax Act, 2025, the synthesised India-UAE DTAA and MLI text, and OECD Transfer Pricing guidance. Research cut-off: 27 September 2026.