UAE Imposes New Tax on Multinational Enterprises

UAE Introduces New Tax on Multinationals from 2025: 15% Domestic Minimum Top-up Tax

The United Arab Emirates (UAE) has announced the introduction of a new tax on multinational enterprises (MNEs) starting from January 1, 2025. The 15% Domestic Minimum Top-up Tax (DMTT) aims to create a fair and transparent tax system in alignment with global tax standards.

Who Will Be Affected by the DMTT?

The DMTT applies to multinational companies that:

(a) Have consolidated global revenues of 750 million euros (approximately 300 billion dirhams) or more in at least two financial years out of the four financial years preceding the implementation of the DMTT.

(b) Operate in the UAE and generate significant profits through their activities.

This tax will apply to the companies' profits to ensure a minimum effective tax rate of 15%.

Why Introduce the New Tax?

The UAE Ministry of Finance introduces the new tax to:

1. Align with international guidelines: The DMTT is consistent with the OECD-backed global minimum tax rules developed to reduce tax avoidance by multinational corporations.

2. Increase transparency in the tax system: The new rules aim for multinational corporations to contribute to sustaining the economy in countries where they operate.

3. Prevent tax optimization: Multinational corporations will have fewer opportunities to exploit low-tax jurisdictions.

Impact of the DMTT on the UAE Economy

The introduction of the new tax could have the following impacts:

(a) Revenue growth: The UAE's state coffers can collect additional revenue from multinational companies benefiting from the country's economic and infrastructural opportunities.

(b) Maintaining competitiveness: Although taxation will become stricter, the UAE may remain an attractive investment destination due to low personal and corporate taxes.

(c) Confidence among international investors: Increasing transparency could strengthen the UAE's position in the global market.

What Should Companies Expect?

Multinational companies should prepare for the new tax environment by:

1. Reviewing tax planning: Large companies need to develop new strategies to effectively manage the DMTT.

2. Precision in financial records: To ensure transparency, companies must ensure their financial data accurately reflects their consolidated global revenues.

3. Engagement with local authorities: Successful compliance with tax regulations requires companies to closely collaborate with UAE tax authorities.

Global Context

The UAE's DMTT is part of a broader international trend aimed at addressing issues of tax avoidance and tax havens. The OECD global minimum tax initiative is supported by 140 countries, including the UAE, which joined the agreement in 2023.

Long-term Prospects

In the long term, the new tax rules could facilitate the diversification of the UAE's economy while maintaining its appeal to multinational corporations. While the DMTT may pose short-term challenges for large companies, establishing a transparent and fair tax system can be beneficial for both corporations and the country.

Companies should take timely steps to prepare for changes to seamlessly adapt to the new regulatory environment.