I. Key Summary:
The UAE Ministry of Finance has announced the implementation of a Domestic Minimum Top-up Tax (DMTT) of 15% on multinational corporations starting January 2025. This initiative aligns with the OECD’s global minimum corporate tax standards, targeting multinationals with revenues exceeding €750 million. The government also proposed tax incentives, including research and development credits, to foster innovation and economic growth. These changes reflect a strategic shift towards boosting non-oil revenues while maintaining a business-friendly environment.
II. Introduction of the Domestic Minimum Top-up Tax (DMTT)
The UAE’s decision to introduce the DMTT stems from its adherence to the OECD’s Two-Pillar Solution, aimed at establishing equitable corporate taxation across jurisdictions. The new tax will apply to multinational enterprises (MNEs) with consolidated global revenues of €750 million or more during at least two of the preceding four financial years. The DMTT ensures that these entities pay a minimum effective tax rate of 15%, thereby reducing tax avoidance and harmonizing UAE policies with international standards.
This measure follows the UAE’s previous introduction of a 9% corporate tax rate in 2023, applicable to domestic business income exceeding AED 375,000. Free zone entities and other specific exemptions remain, enabling continued support for sectors driving the UAE’s economy. The DMTT’s phased implementation provides businesses with time to adapt while preserving the nation’s appeal as a global corporate hub.
III. Incentives to Drive Growth and Innovation
Alongside the DMTT, the Ministry of Finance is considering several tax incentives to stimulate economic development. Among these, an R&D tax credit program is set to commence in 2026. This refundable incentive offers a potential tax credit of 30%-50%, contingent on a company’s UAE-based operations and revenue. Eligible R&D activities must comply with OECD guidelines and be conducted within the UAE, underscoring the government’s emphasis on fostering local innovation.
A separate incentive, effective as early as 2025, targets high-value employment activities. Companies could receive refundable tax credits based on a percentage of eligible salary costs for senior personnel contributing significant economic value.
IV. Broader Fiscal Context
The DMTT initiative represents another step in the UAE’s strategy to diversify its revenue sources beyond oil. The country previously introduced a 5% Value-Added Tax (VAT) in 2018, applicable to most goods and services. In the first three quarters of 2024 alone, tax revenues amounted to AED 272.6 billion, reflecting the growing role of taxation in the national economy.
V. The TME Legal Takeaway
The UAE’s introduction of a 15% Domestic Minimum Top-up Tax is a pivotal development, aligning the nation with global corporate tax norms while maintaining its economic competitiveness. By balancing new tax obligations with growth-oriented incentives, the government seeks to attract multinational enterprises and foster innovation. Companies operating in the UAE should proactively assess the implications of these changes and explore opportunities to leverage the proposed incentives to support strategic goals.
