The United Arab Emirates (UAE) is gearing up to implement a groundbreaking Domestic Minimum Top-up Tax (DMTT), set to take effect from January 1, 2025. Under this new policy, large multinational enterprises (MNEs) with consolidated global revenues of €750 million ($793 million) or more in two of the four prior financial years will be subject to a 15% minimum corporate tax rate on their profits.
This step aligns the UAE with the Organisation for Economic Co-operation and Development’s (OECD) Two-Pillar Solution, marking a pivotal shift in its corporate tax landscape.
Key Features of the DMTT
Global Minimum Tax Compliance:
- Aims to ensure that large multinational companies pay a minimum effective tax rate of 15% in every country they operate.
- Targets corporations with substantial global revenues, reflecting the UAE’s commitment to global tax transparency.
Implementation Timeline:
- Effective for financial years starting on or after January 1, 2025.
Economic Impact:
- Expected to boost the UAE’s non-oil revenue while aligning with international tax practices
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Proposed Tax Incentives to Support Growth
To balance the new tax policies, the UAE’s Ministry of Finance is considering incentives to stimulate innovation and create high-value employment:
1. R&D Tax Credit
- Objective: Promote research and development activities.
- Scope: Aligned with the OECD’s Frascati Manual, focusing on innovation within the UAE.
- Details:
- A 30-50% refundable tax credit for qualifying R&D expenditures.
- Implementation slated for 2026 tax periods.
2. High-Value Employment Incentives
- Objective: Encourage businesses to employ senior executives and skilled professionals in core roles.
- Details:
- A refundable tax credit as a percentage of eligible employee salary costs.
- Proposed to take effect in January 2025.
Why the UAE is Embracing the DMTT
The introduction of the DMTT is part of the UAE’s strategic efforts to:
- Strengthen Economic Competitiveness: Ensure alignment with global tax standards while maintaining its appeal as a business-friendly destination.
- Diversify Revenue Sources: Reduce dependence on oil by increasing non-oil revenue streams through structured taxation.
- Attract Innovation and Talent: Support sustainable growth by encouraging R&D activities and high-value employment.
What Does This Mean for Businesses?
Multinational companies operating in the UAE must reassess their tax strategies and financial planning to align with the new regulations. While the higher tax rate may initially seem challenging, the accompanying tax incentives offer opportunities for businesses to offset costs through innovation and talent development.
The UAE’s adoption of the DMTT and its alignment with the OECD’s global tax framework demonstrates a commitment to economic modernization and global integration. As businesses adapt to these changes, the UAE continues to position itself as a leading hub for innovation and sustainable growth.
