On December 9, 2024, the UAE Ministry of Finance announced significant amendments to Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. These changes introduce a Domestic Minimum Top-up Tax (DMTT) and propose tax incentives aimed at fostering growth and innovation within the country.
Introduction of the Domestic Minimum Top-up Tax (DMTT)
Effective for financial years starting on or after January 1, 2025, the UAE will implement a DMTT of 15% on large multinational enterprises (MNEs) operating within its jurisdiction. This move aligns with the Organisation for Economic Co-operation and Development’s (OECD) Two-Pillar Solution, which seeks to ensure that MNEs pay a minimum effective tax rate of 15% in every country where they operate. The DMTT will apply to MNEs with consolidated global revenues of €750 million or more in at least two out of the four financial years immediately preceding the financial year in which the DMTT applies.
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DMTT will not impact Small & Medium sized businesses!
Proposed Tax Incentives to Support Growth and Innovation
In addition to the DMTT, the Ministry of Finance is considering introducing several corporate tax incentives to enhance the UAE's business-friendly environment and support its national strategic objectives. One such incentive is a Research and Development (R&D) Tax Incentive, expected to take effect for tax periods starting on or after January 1, 2026. This expenditure-based incentive would offer a refundable tax credit ranging from 30% to 50%, depending on the size of the company's operations in the UAE and its revenue.
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Another proposed measure is a refundable tax credit for high-value employment activities. This incentive would be granted to companies as a percentage of eligible income costs for employees and could be applied as early as January 1, 2025. These proposed incentives are subject to legislative approval, and further details are expected to be released by the Ministry of Finance in due course.
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Implications for Businesses
The introduction of the DMTT signifies the UAE's commitment to aligning with international tax standards and ensuring a fair and transparent tax system. For large MNEs operating in the UAE, this means that profits will be subject to a minimum effective tax rate of 15%, potentially impacting their tax liabilities. However, the proposed tax incentives, particularly those aimed at encouraging R&D and high-value employment, present opportunities for businesses to reduce their tax burdens while contributing to the country's economic growth and innovation.
Conclusion
The UAE's amendments to its Corporate Tax Law reflect a strategic effort to balance compliance with global tax standards and the promotion of a competitive, innovation-driven business environment. As the country continues to diversify its economy and reduce reliance on oil revenues, these measures are poised to play a crucial role in shaping its fiscal landscape. Businesses operating in the UAE should stay informed about these developments and assess their potential implications to ensure compliance and optimize their tax positions.
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