UAE to introduce 15% tax on large multinational companies

New tax incentives are also planned for research and development and high-value employment activities

The UAE introduced the federal corporate tax with a standard statutory rate of 9 per cent last year. Antonie Robertson / The National

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The UAE will impose a new tax on large companies in the country as part of changes to its corporate tax law.

Large multinational enterprises (MNEs) are to pay a minimum of 15 per cent tax on the profits generated in the country (up from the current corporate tax rate of 9 per cent), effective for financial years starting on or after January 1, 2025, the Ministry of Finance said on Monday.

The domestic minimum top-up tax (DMTT) will apply to multinational enterprises with consolidated global revenues of €750 million ($793 million) or more in at least two of the four financial years immediately preceding the financial year in which the tax applies.

This “strategic step reflects the UAE’s commitment to implementing the Organisation for Economic Co-operation and Development’s (OECD) two-pillar solution, aimed at establishing a fair and transparent tax system aligned with global standards”, it said.

The OECD's two-pillar reform programme set up a global minimum corporate tax to ensure large multinational enterprises pay a minimum 15 per cent tax on profits in each country where they operate.

The initiative is aimed at addressing tax challenges arising from the digitalisation and globalisation of the economy and putting a floor on tax competition, according to the OECD. The proposed global minimum tax is expected to result in annual global revenue gains of around $220 billion, or 9 per cent of global corporate income tax revenue, the OECD said last year.

Bahrain said in September that it would also introduce DMTT starting from January 1 next year on large multinationals.

“The UAE’s implementation of the DMTT will closely align with the OECD’s GloBE Model Rules,” the ministry said.

The UAE introduced the federal corporate tax with a standard statutory rate of 9 per cent starting from the financial year beginning on or after June 1 last year.

It brought the income of companies exceeding Dh375,000 within the taxable bracket. Taxable profits below that level will be subject to a tax of zero per cent. The Ministry of Finance also announced in May last year that business owners in the country would be subject to corporate tax only if their turnover in a calendar year exceeds Dh1 million, ensuring that only business or business-related activity income is taxed.

The announcement of a separate rate for multinationals had been long trialled by the relevant UAE authorities, said David Daly, partner at Gulf Tax Accounting Group.

“MNEs have been expecting this. What will give them some succour is that it will only apply after the 1st January, 2025. Given corporate tax was introduced in June 2023, this is 19 months at the lower rate of 9 per cent, he said.

“Additionally, there is revenue tapering that will allow entities skirting around the entry-level revenue for payment to sit outside this DMTT.”

The UAE in 2018 also introduced 5 per cent VAT on a majority of goods and services as part of its push to diversify the economy and reduce its dependence on oil. The tax is a general consumption tax and is imposed on most goods and services that are bought and sold.

During the first three quarters of this year, the UAE government made revenues of Dh272.6 billion from taxes, according to Ministry of Finance data.

New incentives

On Monday, the ministry also said it is considering new corporate tax incentives to strengthen its economic competitiveness and improve the ease of doing business.

A new research and development (R&D) tax incentive is being considered to encourage R&D activities and support innovation.

It will be expenditure-based, offering a potential 30 per cent to 50 per cent tax credit and will be refundable depending on the revenue and number of employees of the business in the UAE, the ministry said

The scope of qualifying R&D activities will be aligned with the OECD’s Frascati Manual guidelines and will be required to be conducted within the country.

The proposed incentive is expected to take effect for tax periods starting on or after January 1, 2026.

Another incentive being considered is a refundable tax credit for high-value employment activities.

It will be granted as a percentage of eligible salary costs for employees engaged in high-value employment activities such as C-suite executives and other senior personnel performing core business functions that “add substantial value to the UAE economy”, the ministry said.

This incentive is proposed to take effect on January 1 next year. “This aims to encourage businesses to engage in activities that deliver significant economic benefits, stimulate innovation, and enhance the UAE’s global competitiveness,” the ministry said.