The United Arab Emirates is set to implement a new tax regime starting January 1, 2025, alongside exploring business incentives designed to promote innovation and economic development. These updates are part of Federal Decree-Law No. 47 of 2022 on Corporate and Business Taxation, showcasing the UAE’s commitment to global tax standards and economic progress.
Introduction of Domestic Minimum Top-up Tax
Following the issuance of Federal Decree-Law No. 60 of 2023, the UAE will introduce a Domestic Minimum Top-up Tax (DMTT) for financial years beginning on or after January 1, 2025. This measure aligns with the Organisation for Economic Co-operation and Development’s (OECD) Two-Pillar Solution, which advocates for a transparent and equitable tax framework globally.
The DMTT will specifically target multinational enterprises (MNEs) with consolidated global revenues exceeding €750 million ($794 million) in at least two out of the four financial years preceding its application. These companies will be required to maintain a minimum effective tax rate of 15% on their profits in every country where they operate.
The UAE’s implementation of DMTT will adhere closely to the OECD’s Global Anti-Base Erosion (GloBE) Model Rules, ensuring alignment with international standards. The Ministry of Finance will release additional guidelines regarding the DMTT in due course.
Proposed Business Incentives
In addition to the new tax, the UAE is considering incentives to encourage research, innovation, and high-value employment. These measures aim to bolster the nation’s competitiveness, attract investment, and support long-term economic sustainability.
Research and Development (R&D) Tax Incentive
A proposed R&D Tax Incentive aims to promote innovation and economic growth by offering expenditure-based tax credits of 30-50%. This incentive, which could be refundable based on business size and revenue, will apply to qualifying R&D activities conducted within the UAE. Aligned with the OECD’s Frascati Manual guidelines, the incentive is expected to take effect for tax periods starting January 1, 2026.
Incentives for High-Value Employment
Another proposed measure includes a refundable tax credit for businesses engaging in high-value employment activities, such as hiring C-suite executives or senior personnel who contribute significantly to the UAE’s economic growth. Scheduled for implementation on January 1, 2025, this incentive will be calculated as a percentage of eligible salary costs.
Commitment to Competitiveness
The UAE’s new tax and proposed incentives reflect its strategic goals of enhancing ease of doing business, fostering innovation, and maintaining a business-friendly environment. The Ministry of Finance has indicated that the final form of these incentives is subject to legislative approval, with further details to be announced soon.
These initiatives underline the UAE’s dedication to achieving its national objectives, driving economic progress, and solidifying its position as a global hub for innovation and investment.
