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New UAE tax: Which companies are covered by 15% tariff? Exemptions explained

Experts elaborate on how the domestic minimum top-up tax will be implemented and how it will impact businesses in the country

Published: Wed 11 Dec 2024, 2:09 PM

Updated: Wed 11 Dec 2024, 8:02 PM

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All global companies that have operations in the UAE will come under the scope of the 15-per-cent domestic minimum top-up tax (DMTT) that will come into effect in 2025, say tax experts.

The UAE’s Ministry of Finance on Monday said the DMTT will apply for financial years starting on or after January 1, 2025, for multinational companies as part of the framework agreed upon the Organisation for Economic Cooperation and Development’s (OECD) two-pillar solution.

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The DMTT will apply to multinational enterprises operating in the UAE with consolidated global revenues of €750 million or more in at least two out of the four financial years immediately preceding the financial year in which the DMTT applies.

Thomas Vanhee, founding partner of Aurifer Middle East Tax Consultancy, said the new tax “applies to all companies which operate internationally".

He elaborated that 145 countries have agreed to this new tax and some of them have already implemented it in 2024.

“In almost all countries around the world, we will have a bottom limit of 15 per cent,” he added.

Anurag Chaturvedi, CEO at Andersen UAE, said multinational enterprises (MNEs) with global consolidated revenues of EUR 750 million or more (approximately Dh3.15 billion) are covered by Pillar 2.

"As a result, UAE-based MNEs or foreign MNEs with subsidiaries in the UAE that exceed these thresholds will be impacted by the DMTT.”

Vishal Sharma, managing director and UAE tax practice leader at Alvarez and Marsal, said the UAE’s position looks to align with other GCC nations such as Bahrain (which already has a draft DMTT legislation in place), as well as Qatar and Kuwait, which have made progressive steps on their implementation of these rules.

Exemptions

Chaturvedi added that the public clarification indicated that purely UAE-based groups would be excluded. “Further details on the final legislation are awaited, and it remains to be seen whether the final legislation includes this or any other exceptions.”

Vanhee said domestic companies are excluded from the scope of this new tax.

“There are a number of exclusions as well from Pillar 2 rules, which refer to government entities, investment funds, real estate investment trusts and entities controlled by those companies or passive entities. There is an exclusion for shipping income,” Vanhee told Khaleej Times.

Near-term impact

Bal Krishen, chairman of Century Group, said the UAE has transitioned from a tax haven to a low-tax jurisdiction since the introduction of a nine-per-cent corporate tax rate in 2023.

“In the short term, a higher tax regime will inevitably impact profitability for businesses that were used to enjoying relatively lower taxes offered by the Gulf state, leading to a negative investor sentiment. However, corporations in the country’s free zones will maintain their tax-exempt status, and despite a 15-per-cent tax rate, the UAE would still be an attractive business destination, relative to countries like the UK and Saudi Arabia, which have corporate tax rates of 25 per cent and 20 per cent, respectively,” he said.

He added that the UAE is trying to bolster business and entrepreneurship with the new act by suggesting the introduction of tax incentives for research-and-development expenditure, with a 30- to 50-per-cent refundable tax credit, along with tax credits for high-value employment activities.

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