For years, the UAE was known for its low-tax environment. Many multinational companies (MNCs) used this to their advantage, paying little or no corporate tax on income earned within the country. However, this created a problem; other countries began collecting taxes on profits made in the UAE, leaving the UAE with a smaller or no share. The solution came in the form of the Domestic Minimum Top-Up Tax (DMTT). This law ensures that profits generated in the UAE are taxed at an effective rate of precisely 15%.
If you are a multinational business in the UAE, Tax Gian will help you understand the impact of the DMTT on your business, and our expert corporate tax agents in the UAE will assist you in complying with the new regulations.
Background: Why has the UAE introduced the 15% Tax?
The UAE joined the OECD Inclusive Framework in 2019. Since then, it has introduced several measures to meet global standards, including Economic Substance Regulations, country-by-country reporting, and changes to treaties through the Multilateral Instrument.
Corporate tax was introduced in 2024, marking a major shift. But with the OECD’s global minimum tax in place, the UAE faced a new challenge: if companies paid less than the minimum 15% tax locally, other countries could claim the difference. To prevent this leakage, the UAE announced the domestic minimum top-up tax for multinational groups.
Objective of the Domestic Minimum Top-Up Tax
The primary goal is straightforward: to ensure the UAE retains its fair share of taxes on income generated within its borders. Instead of foreign governments collecting tax on profits made in the UAE, the tax authority here can now do it directly.
This means MNCs operating in the UAE can no longer rely on low effective tax rates to shift profits elsewhere. The UAE is positioning itself as a modern, compliant jurisdiction, while still offering clarity and consistency for global investors. If you are an MNC, ensure that you connect with your corporate tax agents in the UAE and begin preparing in advance.
Alignment with OECD Rules
The UAE has made its regulations closely match the OECD’s model. This ensures that businesses working across multiple countries face consistent rules and processes. All OECD guidance on computing effective tax rates and applying top-up tax will automatically apply in the UAE, unless specified otherwise.
This choice reduces confusion and avoids duplication. MNCs can follow one set of principles when calculating obligations, making compliance smoother across jurisdictions.
How It Works in Practice
A multinational group with operations in the UAE must calculate its effective tax rate based on UAE financial statements. If the rate falls below 15%, the difference becomes payable as a top-up tax to the UAE authorities.
This creates two parallel obligations for such companies:
- Filing a corporate tax return under the UAE corporate tax law, within nine months of the financial year end.
- Preparing UAE financial statements under the domestic minimum top-up tax rules, calculating the effective tax rate, and paying any required top-up tax within 15 months of the year-end.
Both steps are mandatory, and companies must ensure their accounting systems can handle these requirements. It’s recommended to seek assistance from corporate tax agents in Dubai for initial filings to ensure accuracy.
Example: Company A is an MNC who pays CT at an effective rate of 10%. As per the DMTT regulations, Company A is now obliged to pay 5% DMTT in the UAE.
Safe Harbor and Concessions
To ease the impact, the UAE introduced safe harbor rules aligned with OECD recommendations. Smaller multinational groups with limited operations or assets can benefit from relief. For example:
- Groups with operations in fewer than six countries and assets below €50 million can claim exemptions for the first five years.
- Turnover-based thresholds allow some entities to avoid immediate obligations.
Concerns for UAE-Headquartered Groups
One debated issue is the treatment of UAE-based large groups. Currently, no exemption exists for groups headquartered in the UAE that operate in more than six countries or hold assets over €50 million.
Critics argue that applying the top-up tax to such groups is unnecessary. Since no other country would collect tax on their UAE profits, taxing them under these rules may be unfair. This area may see further adjustment as the law develops.
Preparing for Compliance
The law applies to financial years beginning on or after January 1, 2025. While the final return format is not yet published, it is expected to follow OECD templates. Businesses cannot afford to wait. They must start assessing their systems and preparing consolidated UAE financial statements.
This preparation may require changes in accounting software, staff training, and possibly adopting new compliance tools. Tax teams should also evaluate how corporate tax planning interacts with the top-up tax, as benefits under one regime could be reduced by the other. Corporate tax agents in Dubai can provide significant assistance in all this.
How can Tax Gian Help?
The introduction of corporate tax and the domestic minimum top-up tax shows how fast the UAE is adapting to international standards. For MNCs, this means increased compliance, additional reporting requirements, and higher administrative costs. Tax Gian is the solution. Our expert tax agents will help you prepare, manage reporting, file taxes and much more. We make compliance easy for businesses. Consult our experts today!
