UAE is dedicated to adopting the two-pillar resolution of OECD, which aims to create a fair and transparent tax system aligned with international standards.
The United Arab Emirates (UAE) plans to introduce a new tax on large companies as part of changes in its company tax law.
Ministry of Finance announced that multinational enterprises (MNEs) pay at least 15% tax on the profits they have earned within the country. This is an increase from the current tax of 9% and will come into effect on or after January 1, 2025.
The domestic minimum top-up tax (DMTT) will apply to MNEs with a consolidated global income of €750 million ($793 million) or more in at least two of the four financial years before tax implementation for the financial year.
It shows the UAE’s dedication to adopting the two-pillar resolution of the Organisation for Economic Co-operation and Development (OECD). It aims to create a fair and transparent tax system aligned with international standards.
The OECD two-pillar reform set up a global minimum corporate tax for all large multinational enterprises to pay a minimum of 15% tax on profits in every country they operate.
According to the OECD, this move was taken to solve the tax problems due to digitalization and globalization in the economy while establishing a base for tax competition.
According to the OECD report last year, this global minimum tax will give approximately $220 billion in global annual income gains or 9% of the total global company tax income.
In September, Bahrain announced that it will implement DMTT from January 1 next year for large MNEs.
The minister mentioned that UAE’s adoption of DMTT will align with the OECD GloBe Model Rules.
The UAE introduced the federal corporate tax with a standard statutory rate of 9%, starting from the financial year beginning or after June 1 last year.
The company’s income of more than Dh375,000 will come under the taxable category. Profits before that threshold will have a zero per cent tax rate. In May, the Ministry of Finance announced that business owners will only have corporate tax if their annual turnover exceeds Dh1 million, ensuring that income from business or business-related activities is taxed.
David Daly, a partner at Gulf Tax Accounting Group, states that announcements regarding a separate tax rate for multinationals have been under consideration for quite some time.
He added that MNCs have been expecting this change, and some reassurance is that it will only take effect from January 2025. It provides a 19-month period at a 9% low rate since it was introduced in June 2023.
There is a revenue tapering that will exempt companies from the entry-level income from DMTT.
In 2018, the UAE also introduced a 5% VAT on goods and services to expand the economy and reduce its dependence on oil. This tax is a general consumption tax that is applied to most goods and services bought and sold.
According to the Ministry of Finance data, the tax income was Dh272.6 billion during the first three quarters of 2024.
On Monday, the minister mentioned that it is looking for corporate tax incentives to strengthen the economic competitiveness and enhance the business environment.
A new research and development tax incentive is under consideration to promote R&D and innovation.
The Ministry stated that it will be based on expenditures, given tax credits between 30 and 50%, and refunded based on revenue and workforce in the UAE.
OECD’s Frascati Manual provides guidelines for R&D activities and must be conducted within the country. This incentive will likely start for tax periods on or after January 2026.
Another incentive that is under consideration is a refundable tax credit for high-value employment activities.
It is given as part of salary expenses for employees in high-value jobs, including C-suite executives and other senior staff, that will benefit the UAE economy.
This will take effect in January of next year. This aims to motivate companies to engage in activities that will benefit the economy, encourage innovation, and boost the UAE’s global competitiveness.
