UAE Introduces 15% Corporate Tax for Multinational Enterprises in 2025

UAE to Introduce 15% Corporate Tax on Large Multinational Enterprises

The UAE has announced a new tax framework targeting large multinational enterprises (MNEs), set to take effect for financial years starting on or after January 1, 2025. Under this updated policy, MNEs with consolidated global revenues of €750 million ($793 million) or more in at least two of the past four financial years will be subject to a minimum corporate tax rate of 15%, up from the current 9% rate.

Aligning with Global Standards

The initiative reflects the UAE's commitment to implementing the OECD’s two-pillar solution, which aims to establish a fair and transparent global tax system. The OECD’s reform is designed to address tax challenges arising from the digitalization and globalization of economies while ensuring large enterprises contribute a minimum tax in every jurisdiction where they operate.

The UAE’s adoption of the Domestic Minimum Top-Up Tax (DMTT) aligns closely with the OECD’s Global Anti-Base Erosion (GloBE) Model Rules. This strategic move positions the UAE as a global economic leader while maintaining compliance with international tax standards.

Phased Implementation

The new 15% corporate tax will take effect nearly 19 months after the initial introduction of the 9% federal corporate tax in June 2023. This phased approach gives businesses time to adjust and provides relief to entities just below the revenue threshold for DMTT application.

Tax Incentives to Spur Innovation and Competitiveness

Alongside the new tax rate for MNEs, the UAE is introducing corporate tax incentives aimed at boosting its economic competitiveness:

1. Research and Development (R&D) Tax Incentive:
   
   • Encourages innovation and R&D within the UAE.
   • Provides an expenditure-based tax credit of 30% to 50%, refundable based on business revenue and employee numbers.
   • Applies to R&D activities conducted within the UAE, adhering to OECD’s Frascati Manual guidelines.
   • Effective for tax periods starting on or after January 1, 2026.
2. Incentive for High-Value Employment Activities:
   
   • Grants refundable tax credits based on eligible salary costs for senior personnel, including C-suite executives, performing core business functions.
   • Targets activities that add substantial value to the UAE economy.
   • Effective from January 1, 2025.

Tax Revenue Growth and Economic Diversification

The UAE’s strategic tax reforms align with its ongoing push to diversify its economy away from oil dependency. During the first three quarters of this year, the government reported tax revenues of AED 272.6 billion, reflecting the success of previous measures such as the 5% VAT introduced in 2018.

By introducing these updates, the UAE aims to:

• Enhance its global economic standing.
• Foster a business-friendly environment.
• Promote activities that drive innovation and create high-value jobs.

Implications for Businesses

Multinational enterprises operating in the UAE must review their tax strategies and compliance processes to align with the new DMTT framework. Businesses engaged in R&D and employing high-value personnel can leverage the proposed incentives to optimize their tax positions and remain competitive in the evolving economic landscape.

For detailed guidance on corporate tax compliance and planning, Al Kabban & Associates offers expert advisory services to help businesses navigate these changes effectively. Our experienced team is ready to assist companies and clients in ensuring full compliance with the new laws and optimizing operational practices. Contact us to speak to one of our expert lawyers today.

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