UAE to impose Tax on multinational companies marks a significant step in the country’s tax policy, as the United Arab Emirates plans to apply a 15% minimum tax on large multinational companies from January 1, 2025. The finance ministry confirmed that the Domestic Minimum Top-Up Tax, known as DMTT, will apply to multinational groups with global revenue of at least €750 million in two of the previous four financial years. Moreover, the decision supports efforts to increase non-oil income and strengthen the corporate tax system while focusing only on large global businesses operating in the UAE.
Furthermore, the DMTT follows the Organisation for Economic Co-operation and Development (OECD) global minimum corporate tax agreement signed by 136 countries including the UAE. The agreement aims to reduce tax avoidance and prevent profit shifting to low-tax countries. Earlier, the UAE introduced a 9% corporate tax while offering exemptions to many free zones. However, the new tax rule aligns the UAE with global standards and helps maintain the country’s position as a leading hub for multinational companies.
Why the UAE Imposed Tax on Multinational Companies?
The goal of introducing taxes is to promote fair competition and responsible behaviour among larger businesses globally. By introducing taxes on companies, it is intended that companies will pay their share of taxes where they conduct business activities. The goal of the Tax would be to promote long-term economic stability through greater transparency and trust between the company and its international business partners. Introducing the Tax will also be consistent with the UAE’s intention of being a strong and welcoming environment for new and existing investment businesses.
Who will be Affected? – UAE to Impose Tax on Multinational Companies
The policy will generate additional revenue for the UAE government while continuing to comply with the new OECD standards regarding taxation of Milestone Level International Corporations.
- Multinational companies with global revenues of AED 3.15 billion or more in at least two of the last four financial years.
- Enterprises that meet the OECD’s threshold for global minimum taxation and fall under the UAE’s new policy.
- Large global corporations operating in or through the UAE that must report financials and pay the correct Tax on qualifying profits.
Who is not Affected?
The UAE has excluded smaller businesses from the new Tax to maintain a supportive business environment. Free Zone companies with existing tax incentives are also largely unaffected.
- Small and medium sized enterprises (SMEs) with revenues below the €750 million threshold.
- Free zone companies benefit from existing tax exemptions and incentives.
- Local businesses are not classified as large multinationals under the new rules.
Why the UAE’s New Tax Matters?
The introduction of a 15% minimum corporate tax rate in the United Arab Emirates demonstrates that the country is committed to meeting the standards set out under OECD and indicates that the UAE is creating a transparent economic structure and a continuing opportunity for economic prosperity. UAE’s new proposed minimum tax rate enhances the ability of the UAE to act as a trusted international corporation. The policy also represents a fair approach to taxation for both large global corporations and small local businesses.
Key Advantages
Enhances Global Reputation
Alignment with the global standard for taxation demonstrates to investors that the UAE is a transparent and trustworthy economy, and therefore, the UAE will attract new responsible investors.
Convenient for Larger Companies
By allowing multinationals to pay taxes locally, businesses can reduce their risks associated with tax audits and disputes in other countries.
Continues to Provide Incentives for Investment
Due to its strategic location, good infrastructure, and extensive network of double taxation agreements, the UAE remains a desirable destination for investors.
Balance of Economic Contributions
Multinational corporations pay their fair share of taxes, while at the same time, small and medium-sized enterprises, start-up companies, and businesses operating in free zones will continue to take advantage of economic incentives that support entrepreneurship and growth.
How Multinationals Will Prepare for New Tax?
All multinational corporations operating out of the United Arab Emirates must proactively prepare and adjust for the newly implemented 15% minimum corporate tax to ensure compliance with government regulations and minimise tax penalties. Also, focus on maximising current and future financial strategies to continue operating successfully within this favourable growth environment.
Preparation Steps for Multinational Corporations
Multinational Corporations can follow these practical steps when preparing for the new 15% Corporate Tax to ensure that they are keeping pace with the new rate and remain positive about their future business operations.
Re-evaluate Financial Plans and Operational Plans
Review the structure of the costs you will incur, the profit margins associated with selling products and services, plus any potential Capital Investment Strategies, with a view to assessing the impact of the Corporation Tax and making necessary changes accordingly.
Consult Professional Advisors
It is strongly recommended that Multinational Corporations seek the assistance of experienced Tax Consultants and Legal Practitioners to assist with compliance issues surrounding the minimum Corporate Tax through assessment of compliance requirements, assessment of Reporting Requirements, and Identification of Planning Opportunities.
Revise Internal System Improvements
Multinational Corporations will need to enhance their Internal Accounting Systems, Reporting Structure, and Internal Controls to effectively manage and assess their tax obligations imposed by the Government of the UAE and file accordingly and in a timely manner.
Consider Long-Term Consequences
Multinational Corporations will need to account for the long-term implications of the Corporation Tax, including International Pricing, Intercompany Transactions, and the planning of Cross-Border Tax Strategies to maintain International Business Operations in a smooth manner.
Partner with Al Riyady to Support your Business
Al Riyady assists multinational organizations in the UAE with their compliance and accounting needs through the 15% minimum corporate tax. We provide services related to corporate compliance, Tax, and financial advice to enable corporations to fulfil all applicable regulatory requirements while optimizing their economic strategies. By partnering with Al Riyady, multinational organizations can spend time on their core business rather than fear of penalties and compliance risks.
Ways we can Assist
- Al Riyady assists companies in meeting tax-related compliance obligations by guiding companies through all reporting requirements and filing taxes timely to reduce the risk of penalty assessments.
- Al Riyady assists in creating a financial strategy for organizations by assessing the effect of the corporate tax law on profit, cost, and investment portfolio, and developing practical recommendations.
- Al Riaydy assists companies with re-engineering their business processes to enable them to benefit from all the available strategies for tax management, updating accounting systems, developing and implementing internal controls, developing the appropriate reporting framework, etc.
- Al Riyady assists companies with developing a long-term strategy for cross-border taxation, intercompany transactions, and global operations.
Finale
The UAE to impose tax on multinational companies represents a major step in creating a fair and transparent business environment. By imposing a minimum corporate tax rate of 15%, large multinational corporations will only be required to contribute their fair share of tax revenue. The introduction of the new taxation structure will help ensure an economically stable future, encourage businesses to adopt socially responsible approaches and provide incentives for long-term economic growth.
