UAE launches top-up tax for multinational companies

A significant update to the UAE Corporate Tax rules introduces a Domestic Minimum Top-up Tax (DMTT), which will take effect for financial years starting on or after January 1, 2025.

The DMTT will apply to multinational enterprises (MNEs) operating in the UAE with consolidated global revenues of 750 million euros or more in at least two out of the four financial years preceding the year in which the DMTT is applicable. In addition to the standard UAE corporate tax rate of 9%, these multinationals will be required to pay an additional annual tax on their revenues generated within the UAE.

This move is part of the UAE’s commitment to implementing the Organisation for Economic Co-operation and Development’s (OECD) Two-Pillar Solution, aimed at establishing a fair and transparent global tax system.

The UAE’s adoption of the DMTT will align with the OECD’s Global Anti-Base Erosion (GloBE) Model Rules. Under Pillar Two of these rules, large multinational enterprises must pay a minimum effective tax rate of 15% on profits in each country they operate in. This is designed to prevent global businesses from relocating their headquarters to low-tax jurisdictions and avoiding higher taxes in their home countries.

In addition to the DMTT, the UAE Ministry of Finance is considering an R&D tax incentive to encourage research and development investments. Based on feedback from public consultations in April 2024, this incentive is expected to take effect for tax periods starting on or after January 1, 2026. The incentive will be expenditure-based, offering a tax credit of 30-50%, refundable depending on the business’s revenue and number of employees in the UAE.

Another potential tax incentive under consideration is a refundable tax credit for high-value employment activities. This would encourage businesses to engage in activities that contribute significantly to the economy, foster innovation, and enhance the UAE’s global competitiveness. This employment tax credit would apply to senior employees, such as C-suite executives, who perform core business functions that add substantial value to the UAE economy. This incentive is proposed to take effect from January 1, 2025.

Both proposed incentives are subject to legislative approval, and further details will be provided by the Ministry of Finance in due course.