All multinational corporations operating in the UAE will fall under the domain of the 15-percent domestic minimum top-up tax (DMTT), which is set to take effect in 2025, according to tax experts.
The UAE’s Ministry of Finance announced that the DMTT will be applicable to financial years commencing on or after January 1, 2025, for multinational companies. This initiative is part of the arrangement reached within the Organisation for Economic Cooperation and Development’s (OECD) two-pillar solution.
The DMTT will target multinational enterprises in the UAE that have consolidated global revenues of €750 million or more in at least two of the four financial years prior to the financial year in which the DMTT is applicable.
Thomas Vanhee, founding partner of Aurifer Middle East Tax Consultancy, stated that this taxation applies to all companies engaged in international operations. He noted that 145 countries have already agreed to implement this new tax, with some set to enforce it in 2024.
“In nearly every country across the globe, a minimum tax rate of 15 percent will be established,” he added.
Anurag Chaturvedi, CEO at Andersen UAE, emphasized that multinational enterprises (MNEs) with global consolidated revenues of €750 million or above (approximately Dh3.15 billion) are affected by Pillar 2. Consequently, UAE-based MNEs or foreign MNEs with subsidiaries in the UAE surpassing these thresholds will be subject to the DMTT.
Vishal Sharma, managing director and UAE tax practice leader at Alvarez and Marsal, pointed out that the UAE aims to align its tax framework with other GCC nations like Bahrain, which already has draft DMTT legislation, as well as Qatar and Kuwait, both of which have made advances towards these regulations.
Exemptions
Chaturvedi further noted that public clarifications indicated that entities operating solely in the UAE would be exempt. More information regarding the final legislation is anticipated, and details on other potential exceptions remain uncertain.
Vanhee clarified that domestic companies are not included in this new tax’s scope. “Several exclusions also exist within the Pillar 2 guidelines for government entities, investment funds, real estate investment trusts, and organizations controlled by these companies or classified as passive entities. Additionally, there is an exemption for income generated from shipping.
Near-term impact
Bal Krishen, chairman of Century Group, remarked that the UAE has evolved from being a tax haven to a low-tax jurisdiction since the introduction of a nine-percent corporate tax rate in 2023.
“In the short term, a higher tax regime will likely affect the profitability of businesses that have benefited from the relatively lower taxes traditionally offered by the Gulf state, potentially fostering negative investor sentiment. Nevertheless, companies operating within the country’s free zones will continue to enjoy tax-exempt status. Even with the DMTT, the UAE remains a compelling business destination compared to countries such as the UK and Saudi Arabia, which impose corporate tax rates of 25 percent and 20 percent, respectively,” he stated.
He added that the UAE is making efforts to enhance business and entrepreneurship through this new regulation, proposing the introduction of tax incentives for research and development expenditures offering a 30 to 50 percent refundable tax credit, alongside tax credits for high-value employment activities.