UAE Introduces Domestic Minimum Top-Up Tax: What Multinational Enterprises Need to Know

By introducing a Domestic Minimum Top-up Tax, a significant step has been taken by the Emirates to align its corporate tax framework with a global tax framework. Introduced under the UAE’s cabinet 2024 decision number 142, this amendment has come into effect from January 2025. The main reason behind the nation’s decision to introduce this tax was to ensure fairness in the corporate tax structure.

With the UAE Domestic Minimum Top-up Tax, the Emirates has aligned its tax framework with the OECD’s BEPS framework. This has significantly affected its reputation as a prime business-friendly destination for global businesses. Let’s find out more about this tax in this blog, which will feature major information that multinational enterprises operating within the nation must know about the Domestic Minimum Top-up Tax.

Understanding Domestic Minimum Top-Up Tax

On December 09, 2024, the UAE’s MoF announced a significant amendment in its corporate tax framework with the introduction of a Domestic Minimum Top-up Tax. This tax was introduced to ensure that the multinational businesses operating in the UAE contribute fairly to its economic growth by paying proper taxes based on their taxable incomes. This tax is an integral part of the nation’s strategy to implement an OECD-based tax framework, which can ensure that the MNEs operating within the nation must pay at least 15% of their profits as tax.

The introduction of the DMTT also aligns with the TCB law reformed by the 2023 Federal Decree-Law No. 60, which has shifted the UAE’s reputation with a tax-free business environment to a more structured corporate tax system under which a 9% tax rate will be imposed on MNCs with taxable income above AED 375,000. The prime intention of the UAE’s MoF for the implementation of the TCB law and Domestic Minimum Top-up Tax was to reform and comply with its tax framework with OECD’s BEPS and GloBE tax rules. Both these major amendments have been introduced to improve financial transparency and ethical financial practices while reinforcing its position in the global tax community.

As the TCB law features several exemptions and deductions, the UAE has still maintained its reputation as a prime hub for global business entities, particularly for smaller businesses operating in diverse sectors. These amendments ensure that the tax liability remains manageable for businesses with eligible taxable income to maintain the Emirates’ appeal as a top foreign investment destination in alignment with international taxation standards.

UAE Domestic Minimum Top-Up Tax: Who Will Be Affected?

The Domestic Minimum Top-Up Tax has been recently introduced by UAE’s MoF and will affect businesses with annual revenues exceeding EUR 750 million for at least two of the past four financial years. This tax will be imposed on both foreign and local businesses with taxable income above the set revenue value, ensuring tax fairness within the country. However, the UAE’s tax ministry has added some exemptions and deductions to this tax to maintain its reputation as a lucrative destination for foreign investors and businesses.

Motivations Behind UAE Domestic Minimum Top-Up Tax

Several key factors have acted as motivations behind the implementation of the UAE Domestic Minimum Top-Up Tax, which are as follows:

1. Tax Revenue Retention: The first reason behind the introduction of DMMT was to ensure the retention of tax within the nation, ensuring its stable and secure financial position and economic stability.

2. Competitiveness: DMTT not only supports the UAE’s goal to align its tax framework with global tax rules but also ensures the maintenance of its global competitiveness as a destination with a favorable business environment. With DMTT, the Emirates has eliminated the risk of non-compliance with global tax rules and damage to its reputation as a low-tax business environment.

3. Global Compliance: To strengthen its position in the global tax landscape and maintain compliance with global tax rules, particularly OECD’s BEPS, this step has been taken by the UAE’s tax ministry. Compliance with OECS tax rules has reinforced the nation’s relations with other top global economies, including the EU, China, and the US.

4. Economic Diversification: The UAE’s transformation from a zero-tax model to a 9% corporate tax model with a Domestic Minimum Top-Up Tax showcases its vision to achieve economic diversification. 

UAE Domestic Minimum Top-Up Tax: Exempted Entities

The Emirates continue to serve as a prime destination for global businesses and investors, as some entities are exempted from the DMTT tax, which are as follows:

• This tax will not be imposed on government entities and non-profit organizations under specific conditions. 
• Diminish Exclusion eliminates entities within the UAE with minimal profits.
• Some of the companies’ profits that are involved in genuine economic activities are exempted from this tax under SBIE.
• Transitional CBCR Safe Harbor temporary relief particularly helps MNEs that qualify under its EUR 10 million eligibility revenue. 

Conclusion

With the introduction of the UAE Domestic Minimum Top-Up Tax, it has become a must for businesses with taxable income and profits exceeding the EUR 170 million revenue value for two out of four financial years to register with the FTA. Additionally, the TCB law also makes it necessary for businesses with taxable income above AED 375,000 to do the same and secure a unique TRN number. 

Both these amendments will ensure that all the businesses operating within the Emirates contribute equally and fairly to the nation’s economic growth. However, tax experts can assist you in navigating these new tax rules more effectively. Connect with Hisab Taskmaster CA Advisors and get access to the right assistance for maintaining your business profitability with compliance with UAE’s changed corporate tax policies for MNEs. 

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