UAE’s New Tax Regime: Is The 0% Free-Zone Advantage Over For Indian MNCs?

As the UAE rolls out its new global minimum-tax regime, several large Indian multinational companies are reassessing their tax exposure and the benefits of maintaining existing structures in the country, tax experts said.

The 15% minimum tax could reduce the advantage of the UAE’s 9% corporate tax rate and the 0% tax rate on qualifying free-zone income for multinational groups covered by the new rules.

The UAE implemented the OECD’s Pillar 2 global minimum-tax framework in January 2025. The rules apply to multinational groups with consolidated global revenue of at least €750 million ($871 million) in at least two of the previous four years.

Under the regime, companies may have to pay additional tax if their effective tax rate in the UAE falls below 15%. This means even relatively small UAE subsidiaries, free-zone entities and branches of large Indian-headquartered groups could potentially come within its scope.

Tax experts said some Indian multinational groups have been evaluating their exposure and preparing the required data since 2024.

November 30 Registration Deadline

With the registration deadline approaching, more Indian companies covered by the rules are now assessing their potential tax liabilities, reviewing their free-zone arrangements and examining whether they qualify for available exclusions.

The UAE Ministry of Finance recently clarified which entities are required to file the Pillar 2 Information Return. Importantly, the €750-million revenue threshold is assessed at the group level, rather than at the level of the individual UAE entity.

As a result, a relatively small UAE subsidiary could fall under the regime if it belongs to a sufficiently large Indian multinational group.

Companies covered by the domestic minimum top-up tax (DMTT) regime must register by November 30, 2026, and make the applicable payment and file their first return by June 30, 2027.

Free-Zone Tax Advantage Faces Pressure

The new rules are prompting multinational groups to reassess whether the UAE’s 0% free-zone tax rate continues to provide the same economic benefit once Pillar 2 obligations are factored in.

“Several multinational groups are now recalculating the economic value of the 0% rate after taking Pillar 2 into account,” Sehgal said.

Free-zone companies are also examining transitional safe-harbour provisions and international activity exclusions available under the OECD framework, he added.

The DMTT essentially operates as a top-up tax, bringing the effective tax rate on covered profits up to 15%.

For instance, if an in-scope multinational’s UAE operations have an effective Pillar 2 tax rate of 9%, a top-up tax of up to 6% could arise. Where qualifying free-zone income is taxed at 0%, the potential top-up could be as high as 15%.

For large multinational groups, this could substantially reduce — and in some cases effectively eliminate — the tax-rate advantage of a 0% free-zone structure. However, the actual additional liability will depend on each group’s UAE operations and the detailed Pillar 2 calculations, experts said.

The UAE has more than 40 free zones across its seven emirates, including Jebel Ali Free Zone (JAFZA), Dubai International Financial Centre (DIFC), Abu Dhabi Global Market (ADGM), IFZA and RAKEZ.