UAE Introduces 15% Domestic Minimum Top-Up Tax for Multinational Enterprises: What You Need to Know

Introduction: UAE Aligns with Global Tax Standards

The UAE is known to be business-friendly, but this is its biggest step so far towards becoming aligned with international tax norms. From January 1, 2025, the Ministry of Finance has announced that it will levy a 15% DMTT on large MNEs. This measure ensures companies pay a reasonable share of taxes in relation to what the OECD has suggested as global standards.

Accompanying this trend, the UAE is reviewing new incentives directed towards stimulating research and development activities as well as enhancing high-value employment. The country aims to strategize to accelerate its economy with economic growth, innovation, and global competitiveness.

What is the Domestic Minimum Top-Up Tax (DMTT)?

The Domestic Minimum Top-Up Tax (DMTT) is designed to ensure that large multinational companies operating in the UAE pay a minimum effective tax rate of 15% on their profits. This tax is part of the UAE’s commitment to the OECD’s Two-Pillar Solution, which addresses global tax challenges, particularly profit shifting and tax base erosion.

Who Will Be Affected by the DMTT?

The DMTT will apply to multinational enterprises that meet the following criteria:

Global revenues of €750 million (about AED 3 billion) or more.

The revenue threshold must be met in at least two of the four financial years before the DMTT takes effect.

When Does the Domestic Minimum Top-Up Tax Take Effect?

The tax will apply to financial years starting on or after January 1, 2025.

Why is the UAE Introducing the DMTT?

1. Compliance with Global Tax Agreements

The DMTT which came into being in the UAE is in line with OECD structure of worldwide taxation. That implies that multinational companies are no longer able to shift profits in order to avoid taxation.

2. Ensuring justice

This means, for example, that all large companies will be required to pay a minimum level of taxation regardless of the location of their revenue and hence not solely depending on such factors as their revenue earnings base.

3. Improving Clarity

The policy is in keeping with the efforts of the UAE to ensure a business model which is straightforward and not in the least bit unpredictable.

4. Strengthening Competitiveness

Achieving global tax standards only cements and enhances the practice of the UAE as a credible place where businesses can go to get tax solutions.

Potential Challenges for Multinational Enterprises

For multinational enterprises operating in the UAE, the introduction of the DMTT brings a few considerations:

Increased Administrative Burden: Companies will have to consider additional paperwork to ensure compliance with the new tax rate.

Management Reorientation: Budget estimates will need to be amended to take into account the new tax amount range.

International Interaction: Firms that are incorporated in several countries will have to bear the brunt of tax requirements in each of the countries they operate to avoid being taxed in more than one country.

Despite these changes, the UAE remains a top destination for business due to its robust infrastructure, strategic location, and business-friendly policies.

New Tax Incentives to Support Growth and Innovation

In addition to the Domestic Minimum Top-Up Tax, the UAE Ministry of Finance is exploring new incentives to encourage research, innovation, and high-value employment. These measures are designed to ensure the UAE continues to attract top talent and investment.

1. Research and Development (R&D) Tax Incentive

The proposed R&D tax incentive aims at bolstering companies that invest in R&D activities in UAE. The emphasis is on promoting innovation and sustainable development of the economy.

Key Details:

Tax Credit: Eligible businesses may be entitled to a tax credit of between 30-50% on their R&D expenses.

Refundable Credits: The claims may be refundable depending on the size of the company and how much revenue the company generates.

Start Date: If approved, this incentive could be applicable for tax years commencing on or after January 1, 2026.

Compliance: The relevant R&D activities carried out outside Pakistan must meet the guidelines set out in the OECD’s Frascati Manual and must be performed within Pakistan.

Benefits for Businesses:

Promotes capital input into innovation and the creation of new technologies.

Facilitates business growth and competitiveness in the long term.

Positions UAE as the center of new science developments.

2. High-Value Employment Tax Credit

This incentive is designed to attract and retain highly skilled professionals and senior executives. It offers a refundable tax credit for companies that engage in high-value employment activities.

Key Details:

Eligible Employees: Only those C-suite executives and upper management employees who are engaged in touching the business activities are included.

Tax Credit: Percentage of All qualifying salary costs submitted for reimbursement to the taxpayers are used in the computation.

Start Date: This is aimed to come into force on January 2nd, 2025.

Benefits for Businesses:

Contributes to recruiting the best professionals in the UAE labor market.

Boosts activities and operations which create more value.

Increases the appeal of the UAE as an international business center.

Other Normative Changes in the UAE

Restrictions on Lotteries

UAE has recently announced that three operators are allowed to operate lotteries. Other operators have been directed to stop operating. This move ensures:

Regulatory Compliance: Strong oversight to avoid illegal activities.

Consumer Protection: Assists those who participate through honest practices.

Rent Increase in Dubai for 2025

A survey for 2025 suggests residents of Dubai will be subjected to a 10% hike in the cost of renting properties. The Zones that are likely to experience the highest rental growth are:

• Downtown Dubai
• Dubai Marina
• Palm Jumeirah

This reflects the city’s continued growth and demand for prime real estate.

3. New Ministry of Family

In a move to enhance social development, Sheikh Mohammed bin Rashid Al Maktoum announced the formation of the Ministry of Family. This initiative focuses on:

• Strengthening family values.
• Enhancing community well-being.
• Supporting social stability in the UAE.

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