Understanding Dubai's New Corporate Tax Amendments: What Businesses Need to Know

Dubai tops the list of the best cities in which to do business, and for the right reasons. The adaptive policies and reforms in working styles, government support, and tax regimes are aimed at improving the compliance process, relieving administrative burden and creating space for businesses to go global.

Recently, the UAE Ministry of Finance (MoF) announced amendments to the key ministerial decision surrounding corporate tax regulations. These regulations are effective for tax periods starting January 1, 2025.

This blog will explore the key changes introduced to the corporate tax regulations and break them to the T. We will also share the extended deadlines announced by the UAE for businesses. Let’s start.

When Were the Amendments Announced?

The amendments by the MoF were announced on December 9, 2024. It updated certain provisions under Federal Decree-Law No. 47 of 2022 on the taxation of corporations and businesses.

Introduction of a Domestic Minimum Top-Up Tax (DMTT)

The introduction of DMTT is one of the key highlights of the amendments. On the UAE’s part, it is an effort to align its tax regime with international standards to ensure that multinational enterprises (MNEs) are not subject to ultra-low effective tax rates.

The minimum tax rate under the DMTT reform falls under OECD’s Pillar Two, where every MNE is required to meet a minimum 15% tax rate on profits in every country it operates. Consequently, it increases the tax rate from 9% to 15%.

The DMTT will be applied to MNEs operating in the UAE that have a consolidated global revenue of €750 million or more in 2 out of the 4 financial years that precede its applicability.

Exemptions

There are some exemptions to the DMTT. The following companies are exempted from DMTT:

• Companies that fall within tax-exempt sectors or are subject to economic substance requirements
• Government entities, including federal and local institutions
• International organizations recognized under international treaties
• Non-profitable organizations engaged in charitable, religious, educational or public services
• Pension funds
• Investment funds vehicles, which are ultimate parent entities
• Real Estate Investment Vehicles, which as ultimate parent entities

It is important to note that free zone businesses are not automatically excluded from DMTT.

Extended Deadlines

The UAE government has been very considerate of this new addition. They have provided extended deadlines for filing DMTT-related returns. These are as follows:

• Standard filing period: 15 months after the end of the fiscal year
• The first year of compliance: 18 months after the end of the fiscal year

Other GCC regions are also following suit and adopting OECD Pillar Two-aligned tax frameworks for consistency across the region. These include Kuwait, Bahrain and Oman.

How to Calculate the DMTT?

The following is a very brief overview of the process of calculating the DMTT in Dubai.

1. Identify whether your MNE Group is within the Pillar 2 Regulations

The DMTT, as mentioned, only applies to Constituent Entities of MNEs that have an annual revenue of EUR 750 million or more in 2 of the 4 immediately preceding fiscal years. Furthermore, some of the entities are exempted from the scope of Pillar 2. So make sure you check for your eligibility.

2. Compute Pillar 2 Income or Loss for Each Constituent Entity

This is calculated based on ‘Financial Accounting Net Income or Loss’ as per the entity’s standalone statements. Again, these statements have to be prepared in line with International Financial Reporting Standards (IFRS).

If, for any reason, using the IFRS is impracticable, then you will have to use other acceptable accounting standards and make the necessary adjustments. Please check for these adjustments beforehand.

3. Calculate the Adjusted Covered Taxes

Next, you will have to compute the adjusted covered taxes for each constituent entity. Again, the calculation of the adjusted covered taxes will require certain adjustments, additions and reductions. Additionally, it will require an understanding of the Total Deferred Tax Adjustment Amount and the necessary exclusions and adjustments for it. It is a very complex process with a lot of details, so you must pay great attention and care.

4. Calculate the Effective Tax Rate

Then, you will have to calculate the effective tax rate for all entities in the UAE. The formula is as follows:

Effective Tax Rate = Sum of Adjusted Covered Taxes of each Constituent Entity​

Net Pillar Two Income of the UAE

Specifically, the formula for Net Pillar Two Income of the UAE is the difference between Pillar Two Income of all Constituent Entities and Pillar Two Losses of all Constituent Entities located in the UAE.

5. Determine Top-up Tax

Finally, you will have to determine the top-up tax rate by comparing the effective tax rate with the minimum tax rate. Your substance-based income exclusion will come into play here, so be extra careful.

Other Tax Incentives

In addition to the Domestic Minimum Top-Up Tax (DMTT), the government has introduced two corporate tax incentives.

1. Research and Development (R&D) tax Incentive

2. High-value employment incentive

1. Research and Development (R&D) tax Incentive

The R&D tax incentive is aimed at encouraging innovation and growth and is expected to be in effect from January 1, 2026. Under this incentive, businesses that carry out qualifying R&D activities can expect a 30-50% refundable tax credit on eligible expenses.

This incentive comes into effect after a post-public consultation done in April 2024. Again, the scope of qualifying activities will be aligned with OCED’s Frascati Manual guidelines and will have to be conducted in the UAE itself.

2. High-value employment incentive

Another incentive introduced is refundable tax credits for high-value employment initiatives. It was proposed to take place from January 2, 2025. How will it be granted? As a percentage of eligible salary costs for all the employees that are engaged in high-value employment skills. For instance, all the C-suite executives and other senior-level roles engage in core business functions that add more value to UAE’s economy.

Conclusion

The introduction of DMTT and the two other tax incentives reflect the government’s initiative to bring about transparency and meet global standards while driving businesses to innovate and contribute better to the UAE’s wealth. However, this also demands businesses to stay informed and compliant to maximize their benefits and minimize the risks.

We at Alpha Partners PRO can support you with corporate tax compliance via expert consultation and software that helps us audit and submit your returns. Reach out to us today, and let us take care of your corporate tax filings for better compliance and risk mitigation.  

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