UAE corporate tax 9% hit free zones in June 2023. Indian consultants got the surprise.
TL;DR
Most UAE-based Indian consultants set up free-zone LLCs assuming permanent 0% tax. The June 2023 corporate tax law carved out that assumption. Here's what counts as qualifying income, what gets the 9%, and how the India-UAE DTAA Article 11 still keeps NRO interest at 12.5%.
By Vipul Sharma, Founder
Reviewed by Preetesh Maloo, Chartered Accountant, NRI Tax Partner
The June 2023 surprise
On 1 June 2023 the UAE introduced a federal corporate tax of 9% on profits above AED 375,000 (~₹85 lakh). The law applies to free-zone entities and mainland LLCs alike. The Indian-side counterpart for cross-border income is Section 195 of the Income-tax Act, which keeps NRO TDS rules unchanged.
For years, Indian-Americans set up Dubai or Sharjah free-zone LLCs assuming permanent 0% UAE tax. That assumption ended overnight.
A Mumbai-born software consultant running a one-person Dubai Internet City LLC billing ₹1.2 crore (AED 530,000) a year suddenly faced 9% on AED 155,000 of taxable profit, roughly AED 14,000 (~₹3.2 lakh) in annual UAE corporate tax.
The news isn't all bad. Free-zone 'qualifying income' is still 0%. The trick is what qualifies and what doesn't.
Free-zone qualifying income vs non-qualifying
Qualifying income for free-zone entities (the 'Qualifying Free Zone Person' regime):
Transactions with other free-zone entities.
Qualifying activities listed by the UAE Federal Tax Authority (manufacturing, fund management, holding shares, treasury services).
Passive income (dividends, interest, royalties from approved sources).
Non-qualifying income (taxed at 9%):
Services billed to UAE mainland clients.
Services billed to foreign clients OUTSIDE the qualifying-activities list.
Most consultancy, marketing, software-development, and project-management revenue billed to non-UAE customers falls here.
For an Indian consultant whose Dubai LLC bills clients in India, Singapore, or the US, that revenue is non-qualifying. The 9% applies on profit above AED 375,000.
The fix isn't to dissolve the LLC. It's to restructure billing or to elect the QFZP regime carefully.
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India-side: TDS doesn't change, treaty rate stays 12.5%
The UAE corporate tax is Dubai-side only. Your Indian-side filings stay anchored to the India-UAE DTAA Article 11 at 12.5% on interest income.
Default Indian TDS for non-residents under Section 195 is 30%. Without TRC + Form 10F on file, your NRO bank deducts 30% on FD interest. Apply Form 10F + your FTA TRC, and you're at 12.5%.
For a Dubai consultant with a ₹40 lakh NRO FD at 7%, that's ₹2.8 lakh interest annually. At 30%: ₹84,000 lost. At 12.5% treaty: ₹35,000. Annual gap: ₹49,000. Recoverable through Section 119(2)(b) for 5 past Assessment Years if missed.
The UAE corporate tax doesn't eat into this. The two systems run in parallel.
The math for a typical Indian consultancy
A Dubai-based Indian consultant runs a free-zone LLC billing AED 600,000 (~₹1.36 crore) annually to clients in Singapore, India, and the UK.
Gross revenue: AED 600,000.
Deductible costs (rent, software, travel): AED 150,000.
Taxable profit: AED 450,000.
Free-zone exempt threshold: AED 375,000.
Taxable profit above threshold: AED 75,000.
UAE corporate tax at 9%: AED 6,750 (~₹1.55 lakh).
If the same consultant routes Singapore client billings through a Singapore-based holding entity, the AED 75,000 may shrink. Restructuring options exist but require careful free-zone qualifying-activity classification.
On the personal side, the consultant's NRO interest from Indian FDs continues at 12.5% treaty rate via Form 10F. Two tracks, two compliance routines.
What we actually do for UAE free-zone NRIs
We handle the Indian side: Form 10F / Form 41 refile, TRC liaison with the FTA, NRO interest recovery via the 12.5% Article 11 rate, and Section 119(2)(b) condonation for past years.
We don't file your UAE corporate tax return. Most Indian consultants in Dubai use a UAE-side accountant or the FTA's online portal directly. We coordinate with them when the QFZP election interacts with India-side filings (rare, but happens for substantial-shareholder structures).
Indian-side pricing is a fixed fee for the work, quoted in writing on the free call before any work begins, never a share of the refund. Annual Schedule FA + Form 10F + ITR-2 maintenance is a small flat fee, quoted on the call.
If you've set up a free-zone LLC in 2023 or 2024 and you haven't yet looked at the QFZP election alongside the India-side treaty paperwork, book free CA appointment for the 15-minute walkthrough.
Frequently asked questions
Q: I billed AED 200,000 last year. Do I owe corporate tax?
A: No. Below the AED 375,000 threshold, taxable profit is zero. Filing is still required (annual return), but tax owed is zero.
Q: My free-zone LLC holds Indian equity for me personally. Does that count as qualifying income?
A: Holding shares is a qualifying activity. Dividends and capital gains from the holding are exempt under the QFZP regime if structured correctly. Get the substance-over-form right; the FTA looks at actual activity, beyond merely the entity name.
Q: I'm a freelance designer with no LLC, just my Emirates ID. Does the 9% apply?
A: No. UAE corporate tax applies to entities, not individuals. Personal freelance income is still 0% UAE tax. Indian-side TDS on Indian-source income still applies through the regular DTAA rules.
Q: Does the UAE corporate tax affect my Form 10F / Form 41 refile in India?
A: No. Form 10F is filed against your Federal Tax Authority TRC, which is a personal residence certificate. The UAE corporate tax is on your LLC's profit, not your personal residency. The two systems don't intersect at the Form 10F layer.
Q: I sold my Dubai-based LLC in 2025. Capital gains in UAE? In India?
A: UAE-side: a one-time 9% on the gain if you owned the entity directly and the gain is non-qualifying. India-side: nil because the LLC isn't an Indian asset. Book free CA appointment if the structure is a tiered free-zone holding.
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The exceptions that change the answer
Where the general rule stops applying to you
Every rule below has a carve-out, a cut-off date or a condition that flips the answer. These are the ones that decide real cases.
Treaty rate on Indian interest
Right now: Domestic rate 30% plus surcharge and cess on NRO interest; most treaties cap it at 10-15% under Article 11
Where it works differently
- The account is NRE or FCNR
- Interest is exempt entirely while you are a FEMA non-resident. There is no rate to reduce.
- s.10(4)(ii) and s.10(15)(iv)(fa).
- The bank refuses the treaty rate without a PAN
- Rule 37BC and the Serum Institute / Danisco line say s.206AA cannot override a treaty rate.
- See the case register.
- The exact rate matters
- Per treaty. Do not quote a single figure across countries.
Commonly got wrong
- All NRO interest is taxed at 30%. That is the domestic default. With a TRC most treaties bring it to 10-15%.30% plus surcharge and cess by default. With a TRC and Form 10F, your treaty's Article 11 rate applies, commonly 10-15%.