According to a new update on corporate tax in UAE, large multinational enterprises (MNEs) will have to pay a new 15% Domestic Minimum Top-up Tax (DMTT) starting from 1st January 2025. This initiative is complementary to the global tax reforms of the Organisation for Economic Cooperation and Development (OECD) under the Two Pillar Solution, which aims to ensure fair taxation and tax avoidance prevention of multinational enterprises (MNEs). Here, we go deep into the specifics of this new tax regulation.
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Corporate Tax UAE: Key Highlights of the DMTT Regulation
- The tax will only apply to multinational companies with a turnover of at least €750 million globally, payable within two of the four years following the financial year in which the threshold was met, and DMTT was applied.
- The DMTT’s introduction is intended to make sure large MNEs pay an overall tax rate of not less than 15 per cent on profits earned anywhere in the world within a single financial period.
- This new DMTT regulation will be applicable on all financial years starting after 1st January 2025.
- It is also in line with the UAE’s strategy to diversify its economy and raise non-oil revenues.
Corporate Tax UAE: Impact of New DMTT on MNEs in UAE:
- The tax liabilities of MNEs will increase as they will need to prepare for and pay a 15 per cent corporate tax on all the profits they earn in a tax year.
- MNEs will have to prepare for greater compliance and enhance their tax planning and reporting strategies likewise.
- Compliance will be crucial for all MNEs’credibility and reputation among their customers as well as in the eyes of the regulatory bodies.
- MNEs will have to assess their business strategies as a whole in order to cope with the new DMTT regulation.
- MNEs have to be active and keep track of tax updates in order to operate smoothly.
DMTT: Detailed Analysis of the New Tax Policy
Entry into Force
- The 15% Domestic Minimum Top-up Tax will commence with complete effect on 1 January 2025.
- The new regulation will reach multinational enterprises with substantial global revenues, obliging them to contribute to the country’s economy accurately.
Tax Rate and Eligibility
- Qualifying MNEs are additionally subject to a 15% DMTT imposed on the taxable global profits.
- Companies must report global revenues of at least €750 million and pay tax in any two of the four tax years following the year in which DMTT regulation was applied.
Purpose of DMTT Regulation
- The goal is mainly to guarantee that major international companies pay their proper share of taxes on incomes produced within and outside the UAE.
- These are in line with the OECD’s Two Pillar Solution, which aims to achieve a fairer distribution of taxing rights and ensure that income should be taxed at a minimum rate everywhere in the world.
Best Business Practices for MNEs
- Multinational companies must reevaluate their tax strategies and their structures as new regulations come into force.
- To ensure they don’t get caught up in surprise tax liability, companies will need to forecast and plan for this 15% minimum tax.
- The new tax policy could change companies’ investment decisions and urge them to invest in R&D (Research & Development) in order to benefit from possible incentives and invest in high-value employment to benefit from lower possible tax rates.
Potential Benefits of DMTT for the UAE Economy
- Increased Revenue: By boosting the UAE’s non-oil revenue, the DMTT will help diversify the country’s economy.
- Enhanced Competitiveness: The UAE’s alignment with global tax standards further solidifies its business hub’s compliance and competitiveness.
- Attracting Quality Investments: Additional incentives for R&D and high-value employment will attract quality investments and drive innovation and economic growth.
Ask from Experts at Tax Gian
Extreme changes can be seen in the tax framework of the UAE, and this requires businesses, whether MNEs or SMEs, to be extra conscious and up to date with the latest initiatives and decisions of the government. Our experts at Tax Gian help you stay up to date with the latest news about corporate tax in UAE and even assist you in coping with these constant changes in the country’s tax framework.
