According to tax specialists, all foreign businesses operating in the United Arab Emirates would be subject to a 15% Domestic Minimum Top-Up Tax (DMTT) beginning in 2025. 

This measure aligns with the UAE’s adoption of the Organization for Economic Cooperation and Development’s (OECD) two-pillar global tax solution, which was designed to address tax issues brought on by the digital economy.

According to the UAE Ministry of Finance, multinational corporations (MNEs) that have consolidated worldwide revenues of €750 million or more in at least two of the four financial years before the tax’s implementation would be subject to the DMTT. The new rule will be in effect for financial years starting on or after January 1, 2025.

World Tax Alignment

The UAE joins 145 countries that have agreed to adhere to a minimum business tax rate of 15% set by the OECD framework. Tax professionals note that other countries have already put similar rules into place in 2024, highlighting the global trend towards a single tax rate.

The DMTT applies to all companies with international operations, Thomas Vanhee, founding partner of Aurifer Middle East Tax Consultancy, emphasized. “We will have a bottom limit of 15% almost in all countries around the world,” he explained.

According to Anurag Chaturvedi, CEO of Andersen UAE, the tax is aimed at multinational enterprises (MNEs) with global consolidated revenues over EUR 750 million, or roughly AED 3.15 billion. Both UAE-based MNEs and foreign MNEs with UAE subsidiaries who surpass this threshold will be covered by the DMTT.

Sync with GCC Nations

The Gulf Cooperation Council (GCC) members, such as Kuwait, Bahrain, and Qatar, have the same approach as the United Arab Emirates. For instance, Bahrain already has draft DMTT legislation, while Kuwait and Qatar have made significant progress in applying these rules.

Vishal Sharma, managing director and UAE tax practice leader at Alvarez and Marsal, noted that this alignment demonstrates the UAE’s commitment to international tax standards and supports the country’s ability to compete as a business hub.

Clearances and Exemptions

The DMTT will not cover some businesses and industries. According to Chaturvedi, the new tax will not apply to organizations that are solely based in the United Arab Emirates. However, more details on the final legislation are still required to verify additional exemptions or limitations.

Vanhee explained that government institutions, investment funds, real estate investment trusts, and businesses under their supervision are all exempt under the Pillar 2 criteria. Shipping revenue is also not included. The purpose of these exemptions is to reduce the impact on home businesses and specialized sectors.

Effects on Companies and Investment

The UAE is moving from a low-tax state to a more structured tax system with the DMTT. This corresponds to a 2023 corporation tax rate of 9%.

Bal Krishen, the chairman of Century Group, acknowledged that businesses that use low tax rates will see a direct impact on profitability. However, he said that the UAE’s tax rate remains competitive when compared to countries such as Saudi Arabia and the United Kingdom, where corporate tax rates are 20% and 25%, respectively.

Free zones in the United Arab Emirates will continue to be tax-exempt, maintaining their appeal to foreign investors. The UAE government is also looking into tax breaks designed to encourage corporate growth and innovation. The suggested incentives include refundable 30% to 50% tax credits for R&D expenditures and credits for high-value employment activities.

Although the DMTT may initially affect investor sentiment, experts believe it portrays the UAE as an ethical and transparent global center for business. Structured tax policies enhance the country’s reputation in the international marketplace by encouraging investment and sustainable development, which supports steady growth.

By complying with international tax laws, the UAE aims to maintain its position as a leading place for multinational corporations in the evolving global economy while striking a balance between its investor appeal and its commitment to equal taxation.

Understanding the UAE Corporate Tax Landscape

The UAE’s shift from a tax-free business climate to a regulated corporate tax system is a significant transformation for businesses doing business there. The UAE adopted a corporate tax (CT) scheme in June 2023, bringing itself into compliance with global standards in an effort to draw in foreign investment and diversify government revenue. 

Businesses need to understand every aspect of this new tax system in order to stay in compliance and take use of all available exemptions. The dates, rates, exemptions, and compliance tactics of the UAE’s corporate tax system are all covered in detail in this extensive document.

Why the 15% Tax Rate Matters

Multinational corporations are guaranteed to make fair contributions to the nations in which they conduct business thanks to the 15% effective tax rate. Companies frequently move their earnings to low-tax jurisdictions to avoid paying greater taxes due to the lack of such rules. Adopting this standard ensures Dubai stays competitive and advances the global economic fair by aligning it with international standards.

Exemptions for Small Businesses

It is important to remember that the DMTT does not affect small and medium-sized businesses (SMEs). The UAE government calculated this move to safeguard regional companies and entrepreneurs while ensuring that multinational behemoths make equitable contributions. This focused strategy guarantees that Dubai’s new taxes preserve economic equilibrium.

The Domestic Minimum Top-up Tax, one of the new taxes in Dubai, mandates that multinational corporations pay at least 15% effective tax on their income. This action helps worldwide equitable taxation initiatives and aligns the UAE with international tax standards.

These taxes will apply to multinational companies with yearly global revenue of more than AED 3 billion. The focus is on large enterprises with substantial international operations, leaving out smaller companies and those primarily within the United Arab Emirates.

Dubai’s determination to uphold its standing as a leading international economic hub is demonstrated by imposing these taxes. It ensures that companies operating in the UAE pay their fair share of taxes to the global tax system by striking a balance between the necessity of international compliance and its objective of luring investments.

Comparison with Other Countries

Thanks to adopting the OECD recommendations, the UAE is now on a level with other significant international business hubs like Singapore, the UK, and the US. Similar policies have been implemented in these nations to guarantee that multinational corporations support the local economies from which they profit. Even with the DMTT, the UAE’s advantageous tax system continues to draw foreign investors.

Corporate Taxes UAE vs. Other Global Cities