As the United Arab Emirates kicks off a new minimum-tax regime, several big Indian multinationals are assessing their exposure and the economics of their structures in the country with the November registration deadline fast approaching, experts said.
The 15% minimum tax could diminish the advantage of the UAE’s 9% corporate tax rate and 0% levy on qualifying free-zone income for some large multinational groups that fall within the scope of the regime, they said.
The OECD’s Pillar 2 or global minimum-tax rules, as implemented by the UAE in January 2025, apply to multinational groups with consolidated global revenue of at least €750 million ($871 million) in two of the four preceding years, and potentially require additional tax payments when their effective rate falls below 15%. The scope of the tax can cover even relatively small UAE subsidiaries, free-zone companies and branches of large Indian groups.
Tax experts said that some Indian multinational conglomerates had been assessing their exposure and data readiness since 2024.
Several other Indian companies falling within the remit are now assessing their potential tax coverage, reassessing freezone structures and exploring available exclusions as the deadline approaches.
“We are seeing a noticeable increase in queries from large Indian multinational companies following the recent scope and compliance related guidance issued by the UAE federal tax authority,” said international tax advocate Priyanshi Chokshi.
“Among them is a large pharmaceutical group with a setup in the freezone, and a large multinational group that has entities across the UAE, India, the UK, Mauritius, and the US.”
The UAE ministry of finance last week specified the entities required to file the Pillar 2 Information Return. Under the UAE domestic minimum top-up tax (DMTT) regime, the revenue threshold will be tested at the group level. This means a relatively small UAE entity can fall within the rules if it forms part of a sufficiently large Indian-headed multinational group.
The qualifying firms under the top-up tax regime need to register for the levy by November 30 this year. They need to pay up and file the first return by June 30, 2027.
Yeeshu Sehgal, who leads tax firm AKM Global’s West Asia practice, concurred that compliance and scope-related enquiries from Indian-headquartered multinational groups had increased in recent weeks.
“Some had initially assumed that because the parent company is already subject to a relatively high tax rate in India, the DMTT may not apply to them, which is not necessarily correct,” he said. The issue was much more urgent for large Indian-headquartered groups and India-linked multinational groups having UAE subsidiaries, free zone entities, regional headquarters, trading entities, holding companies or other operations in the UAE, he said.
Ajay Rotti, founder, Tax Compaas, noted that some Indian companies covered under the top-up tax are indeed reassessing their freezone structures.
Several multinational groups are now recalculating the economic value of the 0% rate after taking Pillar 2 into account, Sehgal said. Most of the free zone companies are also looking at taking the benefit of transitional safe harbour provisions and international activity exclusions under the OECD’s global tax rules, he said.
CHANGING MATH
For large MNCs, Pillar 2 may significantly reduce, and in some cases effectively neutralise the tax-rate advantage of a 0% free zone structure
The DMTT basically acts as a top-up mechanism to fill the gap if a company is paying less than 15%. For example, where an in-scope multinational group’s UAE operations are subject to an effective Pillar 2 tax rate of 9%, a top-up tax percentage of up to 6% could potentially arise. Similarly, qualifying free zone income that is subject to a 0% UAE corporate tax rate could potentially give rise to a top-up tax percentage of up to 15%.
“However, this does not mean that a flat additional 6% or 15% tax will automatically apply to the relevant profits,” said Chokshi. “The UAE DMTT is calculated on a jurisdictional basis under the Pillar 2 rules, after taking into account the relevant Global Anti-Base Erosion (GloBE) income, covered taxes, the substance-based income exclusion, safe harbours and other applicable adjustments.”
Accordingly, for large multinational groups, Pillar 2 may significantly reduce, and in some cases effectively neutralise the tax-rate advantage of a 0% free zone structure. The actual additional tax cost will depend on the group’s specific UAE facts and Pillar 2 calculation, she said.
The UAE operates over 40 distinct free zones across all seven emirates. These include Jebel Ali Free Zone (JAFZA), DIFC, ADGM, IFZA, and RAKEZ.
Amit Aggarwal, senior partner, Nangia & Co LLP, cited an example saying that an Indian multinational group having a JAFZA (Jebel Ali Free Zone) entity would now need to assess the applicability of the UAE DMTT at the group level and, where applicable, comply with the relevant registration, notification and filing requirements.
“Therefore the economic benefit of the 0% rate may be reduced, potentially substantially, depending on the overall UAE GloBE computation,” he said. “Accordingly, for large multinational groups meeting the prescribed threshold, the relative tax efficiency of maintaining a free-zone structure may warrant reassessment as part of their broader Pillar 2 analysis.”
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