The United Arab Emirates (UAE) is set to introduce a new tax at the start of 2025, and is considering options for incentives to support innovative businesses advancing the economy.
The UAE Ministry of Finance has announced updates in relation to specific provisions of Federal Decree Law No. 47 of 2022 on the Taxation of Corporations and Businesses.
A Domestic Minimum To-Up Tax (DMTT) will be effective in the UAE for financial years starting on or after the 1st January 2025 – this follows the issuance of Federal Decree Law No. 60 of 2023.
This step highlights the UAE’s commitment to implementing the Organisation for Economic Co-operation and Development’s (OECD) Two-Pillar Solution, targeted at establishing a fair and transparent tax system aligned with global standards.
The Pillar Two rules will require large multinational enterprises (MNEs) to pay a minimum effective tax rate of 15 per cent on profits in each country where they operate.
The DMTT will apply to multinational enterprises operating in the UAE with global revenues of $794 million or more in at least two out of the four financial years immediately preceding the financial year in which the DMTT applies.
In a bid to promote sustainable development, innovation and investment, the Ministry of Finance is considering the introduction of Corporate Tax Incentives under Federal Decree Law No. 47 of 2022.
In order to promote and encourage research and development activities, and foster innovation and economic growth in the UAE, a Research and Development Tax is being considered.
Following feedback received during public consultations conducted in April 2024, the proposed incentive is expected to take effect for tax periods starting on or after the 1st January 2026.
The research and development tax incentive will be based on expenditure, potentially offering 30-50 per cent tax credit and that will be refundable depending on the revenue and number of employees in the business in the UAE.
Refundable tax credit for high-value employment activities is being considered. This aims to encourage businesses to engage in practices that deliver significant economic benefits, inspire innovation, and enhance the UAE’s global competitiveness. This incentive is proposed to take effect on the 1st January 2025.
The final form and implementation of the aforementioned proposed incentives are subject to legislative approval. The Ministry of Finance will provide further details and guidance for taxpayers regarding these incentives in due course.