The UAE Ministry of Finance has unveiled critical updates to Federal Decree-Law No. 47 of 2022 concerning the Taxation of Corporations and Businesses. These amendments include the introduction of a Domestic Minimum Top-up Tax (DMTT) and proposed tax incentives aimed at fostering innovation and economic growth.
Introduction of Domestic Minimum Top-up Tax (DMTT)
Effective for financial years beginning on or after 1 January 2025, the DMTT is a strategic initiative aligning with the Organisation for Economic Co-operation and Development’s (OECD) Two-Pillar Solution. This measure underscores the UAE’s commitment to maintaining a fair and transparent tax system consistent with global standards.
The OECD’s Pillar Two framework mandates a minimum effective tax rate of 15% on profits for large multinational enterprises (MNEs) in every country of operation. The DMTT will apply to MNEs in the UAE with consolidated global revenues of €750 million or more in at least two of the four financial years preceding the application of the DMTT. The UAE’s implementation closely adheres to the OECD’s GloBE Model Rules.
The Ministry of Finance has stated that additional details on this legislation will be released soon.
Proposed Tax Incentives for Growth and Innovation
As part of its broader strategy to enhance economic competitiveness and foster sustainable growth, the Ministry is exploring corporate tax incentives under Federal Decree-Law No. 47 of 2022.
Research and Development (R&D) Tax Incentive
To encourage innovation and R&D activities within the UAE, an expenditure-based tax incentive is proposed. Expected to take effect for tax periods starting on or after 1 January 2026, this incentive could offer businesses a refundable tax credit of 30-50%, depending on factors such as revenue and workforce size.
Qualifying R&D activities will align with the OECD’s Frascati Manual guidelines and must be conducted within the UAE.
Tax Credit for High-Value Employment Activities
Another proposed measure aims to incentivize high-value employment. Scheduled for implementation on 1 January 2025, this refundable tax credit will be granted as a percentage of eligible salary costs for employees engaged in high-value roles, including senior executives and personnel performing core business functions that significantly contribute to the UAE economy.
Legislative Approvals and Future Guidance
The Ministry has clarified that these incentives are subject to final legislative approvals. Further details and guidance for taxpayers will be provided in due course.
These updates reflect the UAE’s strategic vision to maintain its position as a global business hub while supporting sustainable economic development and innovation.
