UAE Finance Ministry Announces Amendments To Corporate Tax Law; Introduces DMTT, Incentives

The UAE Ministry of Finance has announced updates to certain parts of Federal Decree-Law No. 47 of 2022, focusing on tax changes. These updates include the introduction of a Domestic Minimum Top-up Tax (DMTT) and tax incentives to support growth and innovation.

The DMTT will apply to financial years in the UAE, aligned with the country's commitment to the Organization for Economic Co-operation and Development (OECD) Two-Pillar Solution, aiming to create a fair and transparent tax system that meets global standards.

The Pillar Two rules require large multinational companies (MNEs) to pay a minimum tax rate of 15% on their profits in each country where they operate, WAM reported.

The DMTT will apply to multinational companies in the UAE with global revenues of €750 million or more in at least two of the four financial years before the DMTT is applied. The UAE's version of the DMTT will closely follow the OECD's GloBE Model Rules.

The Ministry of Finance will provide more details on this legislation in the future. The UAE is working to improve its business-friendly environment, aligning with national goals like boosting economic competitiveness and making it easier to do business.

One of the proposed incentives is a Research and Development (R&D) Tax Incentive, aimed at encouraging R&D, innovation, and economic growth in the UAE. Based on feedback from public consultations in April 2024, this incentive is expected to take effect for tax periods starting on or after Jan. 1, 2026.

The R&D tax incentive will be based on expenses, offering a tax credit of 30-50% that could be refundable, depending on the business's revenue and number of employees in the UAE. The eligible R&D activities will follow the guidelines set by the OECD's Frascati Manual and must be carried out within the UAE.

Another incentive being considered is a refundable tax credit for high-value employment activities. This aims to encourage businesses to engage in activities that bring major economic benefits, drive innovation, and improve the UAE's competitiveness on a global scale.

This incentive will offer a tax credit based on a percentage of eligible salary costs for employees involved in high-value employment activities. This includes senior executives and other key personnel who contribute significantly to the UAE economy.

The final details and implementation of these proposed incentives will depend on legislative approvals. The Ministry of Finance will provide more information and guidance for taxpayers on these incentives in the future.