The United Arab Emirates is improving its business-friendly environment to strengthen economic competitiveness. It is enhancing the business ease, aligning with its commitment to implementing the OECD’s Two-Pillar Solution. Imposing of Domestic Minimum Top-up Tax in the UAE on the big multinational corporations is a step in this direction.
UAE’s Domestic Minimum Top-up Tax (DMTT) for large-scale businesses perfectly aligns with the Global Minimum Corporate Tax Rate (GMCTR). Transparent tax collection is a good measure for the growth of the corporate sector in the UAE. Domestic Minimum Top-up Tax in the UAE is effective for financial years starting on or after 1st January 2025.
The threshold for DMTT is the consolidated global revenues of €750 million (approx. Dh3.15 billion) or more. It’s only applicable on MNCs surpassing international revenue threshold in at least two of the last four preceding financial years. These multinational enterprises in the UAE are subject to the 15% corporate tax.
Working mechanism of the DMTT in the UAE
The federal tax authority (FTA) calculates the effective tax rate (ETR) of a multinational company in the UAE. In case, the ETR falls below 15%, the UAE government collects the difference as the top-up tax. For example, if a multinational generates €1 billion in global revenues, and its UAE subsidiary earns €100 million in profits. The parent MNC has to pay an additional 6% (i.e., €6 million) to meet the 15% minimum tax rate.
Conclusion
The UAE has an inclusive approach to promote local economic objectives. However, it is fulfilling the unified global taxation obligations as well. Keeping a low 9% CT rate for mid-scale businesses, and a 15% DMTT rate for MNCs is its answer.
Seamlessly aligning with the OECD’s Two-Pillar Solution for fairness in the tax collection is a great move. The United Arab Emirates is maintaining a competitive edge for businesses for all sizes. It is attracting growth-driven multinational enterprises, while retaining innovative mid-size companies.
Determine the eligibility of your multinational corporation for the Domestic Minimum top-up tax. Carefully calculate your consolidated global revenues to know the effective DMTT payment. Ensure compliance with the UAE corporate tax law and OECD Pillar Two requirements with business consultants of KWS ME now.
FAQs about the Domestic Minimum Top-up Tax in the UAE
These are the answers to the frequently asked questions about the Domestic Minimum Top-up Tax (DMTT) in the UAE.
The Domestic Minimum Top-up Tax (DMTT) is an extension of the corporate tax (CT). It aligns the corporate income tax in the UAE with the Global Minimum Tax (GMT). DMTT is applicable on the big MNCs meeting international revenue of EUR750 million in at least two of the last four financial years.
The Global Minimum Tax (GMT) promotes taxation fairness by reducing the incentive for companies to shift profits to lower-tax jurisdictions. With equality in taxation through GMT, the OECD expects an additional $220 billion international tax collection. Governments in 136 countries supporting the GMT are using the revenue for healthcare, education, and other community building programs.
The United Arab Emirates is a signee of the Global Minimum Tax (GMT) agreement. For compliance with the international taxation standards, the UAE has updated its corporate income tax law. The specific measures under the OECD’s Pillar Two rules for large MNCs are applicable from 1st January 2025.
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