UAE Set To Introduce New Tax On January 1

The UAE Ministry of Finance has announced updates in relation to certain provisions of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses.

These amendments include the introduction of a new tax as well as incentives to support growth and innovation.

New UAE tax and incentives

Following the issuance of Federal Decree Law No. 60 of 2023, a Domestic Minimum Top-up Tax (DMTT) will be effective in the UAE for financial years starting on or after January 1, 2025.

This strategic step reflects the UAE’s commitment to implementing the Organisation for Economic Co-operation and Development’s (OECD) Two-Pillar Solution, aimed at establishing a fair and transparent tax system aligned with global standards.

The Pillar Two rules require large multinational enterprises (MNEs) to pay a minimum effective tax rate of 15 per cent on profits in every country where they operate.

The DMTT will apply to multinational enterprises operating in the UAE with consolidated global revenues of €750m ($794m) or more in at least two out of the four financial years immediately preceding the financial year in which the DMTT applies.

The UAE’s implementation of the DMTT will closely align with the OECD’s GloBE Model Rules.

Further details on this legislation will be issued by the Ministry of Finance in due course.

Meanwhile, the UAE continues to enhance its business-friendly environment, reflecting its commitment to national strategic objectives such as strengthening economic competitiveness and improving ease of doing business.

To promote sustainable growth, innovation, and investment, the Ministry of Finance is currently considering the introduction of the following Corporate Tax Incentives under Federal Decree-Law No. 47 of 2022.

To encourage R&D activities, foster innovation and economic growth within the UAE, a Research and Development (R&D) Tax Incentive is being considered.

Based on feedback received during public consultations conducted in April 2024, the proposed incentive is expected to take effect for tax periods starting on or after January 1, 2026.

The R&D tax incentive will be expenditure-based, offering a potential 30-50 per cent tax credit and will be refundable depending on the revenue and number of employees of the business in the UAE.

The scope of Qualifying R&D activities will be aligned to the OECD’s Frascati Manual guidelines and will be required to be conducted within the UAE.

Another incentive being considered is a refundable tax credit for high-value employment activities.

This aims to encourage businesses to engage in activities that deliver significant economic benefits, stimulate innovation, and enhance the UAE’s global competitiveness.

This incentive is proposed to take effect on January 1, 2025 and will be granted as a percentage of eligible salary costs for employees engaged in high-value employment activities. This includes C-suite executives and other senior personnel performing core business functions that add substantial value to the UAE economy.

The final form and implementation of the above-mentioned proposed incentives, are subject to legislative approvals.

The Ministry of Finance will provide further details and guidance for taxpayers regarding these incentives in due course.