UAE to Introduce 15% Corporate Tax for Multinationals From 2025

As the tax regime in the UAE continues to evolve, the country is set to implement a significant reform in its corporate tax structure from 1st January 2025. Now, large multinational enterprises (MNEs) need to shell out a 15% Domestic Minimum Top-up Tax (DMTT), which has been increased from the existing 9% slab. This change in tax regime marks a notable shift towards the global tax standards proposed under the Pillar Two framework under the OECD in order to foster fairness and transparency in taxation. Large businesses are closely working with reputed corporate tax consultants in Dubai, UAE to ensure compliance.

Who will be Affected by the 15% Corporate Tax Policy?

The new tax policy in the UAE applies to MNEs with consolidated global revenues exceeding €750 million (approximately $793 million) in at least two of the four financial years preceding the tax year. As per the DMTT, such corporations must pay a minimum effective tax rate of 15% on profits earned within the UAE.

On the other hand, businesses falling below this threshold will continue to operate under the existing 9% corporate tax slab introduced in 2023.

Businesses operating in the free zones of the UAE remain exempt, which demonstrates the country’s commitment to maintaining its status as a global business hub.

With the DMTT in place, the UAE marks its proactive stance to participate in the global tax reform efforts initiated by the OCED. This initiative includes 136 signatory countries and aims to establish a minimum tax rate of 15% to curb tax avoidance. This would also ensure fair competition in all parts of the globe.

Incentives to Foster Economic Growth

The UAE is further exploring new corporate tax incentives to enhance its business environment. These incentives might come into effect in 2025 or later.

1. R&D Tax Credit

The R&D Tax Credit has been designed to promote innovation. This incentive offers a refundable tax credit of 30%-50% for eligible R&D activities that are carried out domestically. These activities align with the Frascati Manual guidelines established by the OECD, which encourages businesses to invest in advanced technologies.

2. High-Value Employment Tax Credit

This tax credit has been designed to reward companies that create substantial local employment opportunities. This is a refundable credit that applies to high-value employment costs, particularly for top executives and professionals who contribute significantly to the country’s economy.

These incentives demonstrate the consistent efforts taken by the government of the UAE to foster innovation and attract top-tier talent to strengthen its global competitiveness.

Implications for Multinational Enterprises

For MNEs operating in the UAE, the implementation of the DMTT poses both challenges and opportunities.

• Higher tax obligations: Companies need to re-evaluate their tax strategies to ensure compliance with the new set of norms.
• Strategic planning: Businesses can offset their tax liabilities through incentives like R&D tax credits which support innovation-driven growth.

With new corporate tax regulations in the UAE in place, businesses must consult experienced advisory professionals to adhere to the latest norms.

Why does the 15% Corporate Tax Rate Matter?

The adoption of the DMTT by the UAE is expected to deliver several strategic benefits.

• Alignment with global tax trends: The new tax rate strengthens the position of the UAE as a trusted hub for global businesses, as it adheres to OECD’s global standards.
• Higher revenue collection: According to the OEED, global revenues can increase annually by $220 billion with the new tax rate in place, which will benefit the UAE.
• Fair competition: The 15% corporate tax rate for larger organizations eases up competition for smaller businesses in competitive markets.
• Economic diversification: With fresh revenues pouring in through tax, the UAE will be better positioned to diversify into non-oil sectors like healthcare, education, and technology.

The introduction of the DMIT in the UAE reflects its forward-thinking approach to tax policy.

Consult Established Corporate Tax Consultants in Dubai

With the new tax norms effective from January 2025, businesses must prepare for this shift. Reputed corporate tax consultants in Dubai, UAE, like the IMC Group, can help large MNEs navigate the challenges ahead with confidence. Working closely with these professionals, large organizations in the UAE can evaluate their tax frameworks and identify potential areas of change. They can also leverage tax incentives to optimize their operations. With professional tax consultants, these businesses can stay informed on legislative developments and stay compliant.