UAE Corporate Tax: Multinational Companies to be included in a 15% tax bracket

Overview:

The United Arab Emirates (UAE) Ministry of Finance has announced the implementation of a 15% minimum top-up tax on large multinational corporations, effective January 2025. This measure aligns with the global tax framework established by the Organization for Economic Co-operation and Development (OECD) under its Base Erosion and Profit Shifting (BEPS) project.[1]

Taxes on Corporates till 31st December, 2024:

Corporate income in the UAE is subject to a tax framework that supports businesses. Income up to a certain threshold is exempt from taxation, providing relief for smaller enterprises, while income above this threshold is taxed at a standard rate of 9%. Additionally, businesses operating within designated free zones may continue to benefit from tax exemptions, provided they comply with the applicable regulatory requirements.

Additionally, a standard Value-Added Tax (VAT) of 5% applies to goods and services, while a customs duty of 5% is levied on imported goods.

Companies Liable to pay taxes:

Through an amendment to the corporate tax laws in the UAE, it has been clarified that the 15% minimum top-up tax will apply only to multinational corporations with consolidated global revenues of EUR 750 million or more. This threshold, equivalent to approximately 2.91 billion AED, aligns with the global standards set by the Organization for Economic Co-operation and Development (OECD) under its Base Erosion and Profit Shifting (BEPS) framework (Pillar Two).

This amendment is part of the UAE's efforts to support the implementation of the Global Minimum Tax regime, ensuring that large multinational enterprises contribute a fair share of taxes in jurisdictions where they operate, while also maintaining the UAE's position as a competitive and business-friendly environment. Companies falling below this revenue threshold will not be subject to the 15% top-up tax but will continue to follow the UAE's standard corporate tax rates.

Deductions and Incentives:

The announcement also clarified that the ministry is also expected to introduce certain exemptions and reliefs to drive innovation and growth and enhance UAE’s appeal as a global hub for business:

§? Research and development (R&D) tax incentives: It is expected that the businesses who carry out eligible research and development will get a 30-50% of deduction on eligible expenditure. These will align with OECD’s Frascati Manual Guidelines, ensuring international compliance and quality standards.

?

§? High Value employment incentives: A proposed refundable tax credit aimed at promoting high-value employment activities is set to be introduced, with implementation anticipated from January 1, 2025. To ensure UAE’s competitiveness, this incentive shall be introduced which will reward businesses employing senior professionals, executives in the core business functions.

Conclusion:

This initiative reflects the UAE's commitment to supporting the OECD’s Global Minimum Tax framework (Pillar Two), while maintaining a competitive and business-friendly environment. Businesses operating in the UAE should prepare for these changes and assess their compliance strategies in light of the new regulations.

Navigating through the dynamic and ever evolving tax landscape in the UAE requires tailored expertise. Our team of experienced professionals can help your business stay compliant by simultaneously identifying opportunities to optimize tax structures, claim eligible deductions, and leverage upcoming incentives. Whether it is to ensure readiness for the 15% top-up tax or to enhance R&D initiatives, at Water and Shark, we provide end-to-end support to align your business with local and international regulations. Contact us today to prepare your business for these changes and secure a competitive edge.

[1] The Domestic Minimum Top-up tax (DMTT) is the part of OECD’s global minimum corporate tax arrangement which has 136 countries, including UAE, to ensure that MNCs pay at least 15% taxes on their income. This will make tax avoidance stringent.

?