Introduction
The UAE Ministry of Finance recently announced significant amendments to Federal Decree-Law No. 47 of 2022 on Corporate Taxation, introducing the Domestic Minimum Top-up Tax (DMTT). This update reflects the UAE’s commitment to aligning with international tax practices, particularly the OECD’s Global Anti-Base Erosion (GloBE) rules under the Inclusive Framework on Base Erosion and Profit Shifting (BEPS). These changes are aimed at enhancing fairness, curbing tax base erosion, and promoting compliance with the evolving global tax landscape.
Domestic Minimum Top-up Tax (DMTT)
As part of the latest amendments under Federal Decree-Law No. 60 of 2023, the Domestic Minimum Top-up Tax (DMTT) will take effect for financial years starting on or after 1st January 2025. This move is aligned with the OECD’s Two-Pillar Solution, particularly Pillar Two, which establishes a minimum effective tax rate of 15% for large multinational enterprises (MNEs) operating across borders.
The DMTT will apply to MNEs with consolidated global revenues of €750 million or more in at least two of the four financial years preceding the year in which the DMTT applies. By implementing these measures, the UAE ensures compliance with the OECD’s GloBE Model Rules, reinforcing tax fairness and transparency.
Further details on the DMTT’s application will be released by the Ministry of Finance to guide affected businesses.
Proposed Tax Incentives to Drive Innovation and Investment
To further support economic diversification, innovation, and ease of doing business, the UAE is considering the introduction of new corporate tax incentives under Federal Decree-Law No. 47 of 2022.
- Research and Development (R&D) Tax Incentive
- Expenditure-based tax credits of 30-50%, which may be refundable depending on the business’s size and workforce in the UAE.
- Activities eligible for the incentive will align with the OECD’s Frascati Manual guidelines and must be conducted within the UAE.
This incentive reflects feedback from public consultations held in April 2024 and aligns with the UAE’s strategy to position itself as a global hub for innovation.
- Tax Credit for High-Value Employment Activities
Another proposed measure, set to take effect from 1st January 2025, is a refundable tax credit designed to encourage businesses to undertake high-value employment activities.
- This incentive will cover a percentage of eligible salary costs for senior employees engaged in core business functions that deliver substantial value to the UAE’s economy.
- Eligible roles include C-suite executives and key personnel responsible for driving innovation and economic growth.
Strategic Implications
These measures underscore the UAE’s dedication to achieving national strategic objectives, enhancing competitiveness, and fostering sustainable growth. The UAE Corporate Tax Amendments, including the DMTT, bring the UAE’s tax framework in line with global standards, while the proposed tax incentives aim to create a more innovation-driven, business-friendly environment.
What’s Next?
The Ministry of Finance is expected to issue additional details and guidance on these amendments and incentives to ensure smooth implementation and compliance. Businesses are encouraged to monitor these updates and prepare to align their strategies with the new requirements and opportunities.
