Domestic Minimum Top-up Tax (DMTT) for MNEs Will be Effective from 1, January 2025
The UAE Ministry of Finance (MoF) announced a significant update in the corporate tax regulation by introducing a 15% Domestic Minimum Top-up Tax (DMTT) for Multinational enterprises operating in the UAE, from January 1, 2025. This decision was made to streamline the UAE tax system with the international tax standards and reflects UAE’s commitment to align with the Organization for Economic Cooperation and Development (OECD) Global Anti-Base Erosion Model Rules (Pillar Two).
The Application of DMTT in UAE:
Starting January 1, 2025, In UAE, the 15% domestic minimum top-up tax will be applicable for multinational enterprises (MNEs) having a global revenue of €750 million (Dh 3 billion approximately) or above in at least two of the four financial years preceding the financial year that the tax applies.
Other Multinational Companies having annual revenue below the threshold for DMTT will be subject to corporate tax in the UAE.
Strategic Objectives Implications of DMTT in UAE:
Alignment With International Tax Standards
The DMTT will be implemented in UAE to align with the international tax standards which ensure fair and appropriate taxation globally and address the issues in tax avoidance.
The OECD has been aiming to address the challenges in the avoidance of tax by multinational enterprises through the Global Minimum Tax (GMT). The DMTT aligns with the OECD Pilar Two rules that focuses on how the tax will be paid by multinational companies through Global Minimum Tax (GMT).
The multi-national companies in UAE with consolidated revenue above EUR 750 million should pay a 15% minimum top-up tax.
Tax Incentives For R &D and High-Value Employment Activities
To foster economic growth & innovation and boost research & development efforts, the UAE Ministry of Finance declared to offer incentives for the research and development activities that significantly contribute to the development of the nation.
Depending on the feedback collected during the public consultations conducted in April 2024, the proposed tax incentive will be expected to come into effect on or after January 1, 2025.
The proposed tax incentive will be expenditure-based with a potential 30% – 50% tax credit and the incentive is refundable with the number of employees and revenue considered.
For qualifying the R&D activities, it’s adherence to the Frascati Manual guidelines of OECD will be determined, which will be conducted in the UAE.
To encourage businesses to engage in operations that delivers substantial benefits to the nation, foster innovation and boost economic growth, the UAE Ministry of Finance decided to offer tax credit for high value employment activities.
The ministry said that a considerable percentage of eligible salary costs will be provided as tax credit for C-level executives and senior employees who are involved in activities that create substantial impact and add value to the economy.
Further information and updates regarding this DMTT regulation will be provided by the Ministry of Finance in due course.
What Multinational Entities Need To Do To Stay Compliant?
Multinational corporations should get prepared for the DMTT regulations to ensure compliance & avoid complications.
Understand Pillar Two Rules & Perform Impact Assessment
The MNEs should streamline and optimize their global operations to identify constituent entities that come under the EUR 750 million threshold.
The effective tax rate of the subsidiary companies in the UAE needs to be calculated.
Make Adjustments in Financial Reporting
The financial statements for the year 2024 need to be evaluated by considering the impacts of the minimum top-up tax.
Enhance Financial Procedures for Compliance
The MNEs should streamline their financial processing and enhance their systems to extract exact data that is required for the GloBe calculations.
Seek Help of Tax Consultants
The UAE Ministry of Finance’s initiative to implement DMTT indicates its commitment to aligning with the international tax standards and the OECD Pillar Solution. At the same time the UAE offers businesses with tax incentives for certain activities and a comparatively low corporate tax rate from other countries to preserve its status as an attractive destination for businesses.
Understanding DMTT and corporate tax obligations is vital for businesses operating in the UAE for strategic tax planning and compliance. It is advised for taxpayers to stay informed and proactive to avoid penalties and utilize available reliefs and exemptions.
Do you need help in making provisions for the DMTT regulations and following OECD GloBe rules? Let us help you ensure compliance with the DMTT regulations, maximize the benefits of the proposed incentives and guarantee adherence to international standards and OECD guidelines.
We, at KGRN Chartered Accountants, have been helping businesses for over 17 years to navigate the intricacies of regulations, stay compliant, devise effective tax strategies and achieve maximum benefits. Reach out to our consultants today!
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