UAE announces Domestic Minimum Top-up Tax effective 1 January 2025 alongside new tax incentives
Background
The United Arab Emirates (UAE) introduced Corporate Income Tax (CIT) at a headline rate of 9% through Federal Decree-Law No. (47) of 2022 on the taxation of corporations and businesses (CIT Law). The law was published on 9 December 2022 and became effective for most UAE businesses starting from financial years beginning on or after 1 June 2023.
On 24 November 2023, the UAE issued a new Federal Decree-Law, amending certain provisions of the CIT Law. The Decree Law introduced a Domestic Minimum Top-Up Tax (DMTT) at 15% for Multinational Enterprises (MNEs), aligning the UAE with the OECD/G20’s global minimum tax framework under Pillar Two1.
Pillar Two, developed by the OECD/G20, establishes a global minimum tax rate of 15% for large MNEs. Companies are subject to Pillar Two if they belong to a multinational group with consolidated annual revenues of at least EUR 750 million (or equivalent) in at least two of the last four years.
When the UAE introduced the DMTT, the specific implementation mechanism and its effective date had not yet been finalized.
On 15 March 2024, the UAE Ministry of Finance (MoF) initiated a public consultation on the implementation of Pillar Two2. The consultation aimed to collect feedback from stakeholders on key policy choices and design options for applying the GloBE Rules in the UAE. This included exploring the potential introduction of the Domestic Minimum Top-Up Tax (DMTT), the Income Inclusion Rule (IIR), and the Undertaxed Profits Rule (UTPR).
DMTT effective 1 January 2025
On 9 December 2024, the UAE MoF announced through its official news agency WAM that Domestic Minimum Top-up Tax (DMTT) will be effective in the UAE for financial years starting on or after 1 January 20253. The press release further states that the DMTT will apply to multinational enterprises operating in the UAE with consolidated global revenues of EUR 750 million or more in at least
two out of the four financial years immediately preceding the financial year in which the DMTT applies and that the UAE’s implementation of the DMTT will closely align with the OECD’s GloBE Model Rules.
R&D tax incentive effective 1 January 2026
To encourage Research and Development (R&D) activities, foster innovation and economic growth within the UAE, a R&D tax incentive is being considered. On 19 April 2024, the UAE MoF initiated a digital public consultation on potential R&D tax initiatives4. Based on the feedback received as a result of this public consultation, the proposed incentive is expected to take effect for tax periods starting on or after 1 January 2026.
The R&D tax incentive will be expenditure-based, offering a potential 30-50% tax credit. The tax credit will be refundable depending on the revenue and number of employees of the business in the UAE.
This new R&D tax incentive is expected to apply in addition to the 0% tax rate for income for Qualifying Intellectual Property available under the Free Zone Tax Regime.
Refundable tax credit
Another new incentive under consideration by the UAE is a refundable tax credit aimed at promoting high-value employment activities. The goal of this tax incentive is to encourage businesses to undertake initiatives that provide significant economic benefits, drive innovation, and strengthen the UAE's position in the global market.
The refundable tax credit is scheduled to take effect on 1 January 2025, the tax credit will be calculated as a percentage of eligible salary costs for employees engaged in high-value activities. These include C-suite executives and senior personnel performing core business functions that contribute substantially to the UAE's economic growth.
Conclusion
MNEs operating in the UAE that meet the Pillar Two threshold—consolidated global revenues of EUR 750 million or more in at least two of the past four financial years—will be subject to a DDMTT of 15%. The DMTT will take effect for financial years beginning on or after 1 January 2025, aligning the UAE with the OECD/G20’s global minimum tax framework under Pillar Two.
In addition, the UAE MoF has introduced two new tax incentives to enhance the country’s appeal as a global investment hub.
References
- Ministry of Finance announces amendments to Corporate Tax Law
- UAE anticipates implementation Pillar Two by implementing domestic top-up tax
- UAE Ministry of Finance launches public consultation regarding the implementation of Pillar Two
- UAE Ministry of Finance launches public consultation on R&D Tax Incentives
1 UAE anticipates implementation Pillar Two by implementing domestic top-up tax
2 UAE Ministry of Finance launches public consultation regarding the implementation of Pillar Two
3 Ministry of Finance announces amendments to Corporate Tax Law
4 UAE Ministry of Finance launches public consultation on R&D Tax Incentives
