UAE’s New Corporate Tax & Its Impact: What Businesses Need to Know
Saturday, 1 March 2025
The United Arab Emirates (UAE) has introduced key tax reforms that will impact businesses, particularly large multinational enterprises (MNEs). These changes align the UAE with global tax standards and ensure fair corporate taxation. Here’s everything you need to know about the new tax policies coming into effect in 2025.
Table of Contents
- Key Tax Changes in the UAE for 2025
- What Is the Domestic Minimum Top-Up Tax (DMTT)?
- Why Is the UAE Introducing This Tax?
- Who Will Be Affected by the New Tax?
- Additional Tax Incentives for 2025 and Beyond
- Key Advantages of Dubai’s New Tax Policies
- Impact of UAE’s New Tax on Multinational Enterprises
- Who is Exempt from the UAE’s New Tax?
- How Do UAE Taxes Compare Globally?
- How Will the UAE Use the Revenue from These Taxes?
- How UAE’s New Tax Will Impact Businesses & How to Prepare
- Frequently asked questions
Key Tax Changes in the UAE for 2025
The UAE introduced Corporate Income Tax (CIT) at a standard rate of 9% through Federal Decree-Law No. 47 of 2022, effective from June 2023. To further align with international tax practices, the UAE government has now introduced a Domestic Minimum Top-Up Tax (DMTT) at a 15% rate for large multinational enterprises.
What Is the Domestic Minimum Top-Up Tax (DMTT)?
The DMTT is a new tax measure ensuring that multinational companies operating in the UAE pay at least 15% tax on their profits. This tax applies to multinational enterprises (MNEs) with global consolidated revenues of at least €750 million (AED 3 billion) in at least two of the past four financial years.
| Tax Type | Details |
|---|---|
| Domestic Minimum Top-Up Tax (DMTT) | 15% tax rate |
| Effective Date | January 1, 2025 |
| Applicable To | Multinational Enterprises (MNEs) with €750 million+ in global revenue |
| Alignment | OECD’s Global Minimum Tax (Pillar Two) |
This move ensures that global corporations contribute fairly to the countries they operate in while preventing tax avoidance through profit shifting to low-tax jurisdictions.
Why Is the UAE Introducing This Tax?
The introduction of the 15% minimum tax rate aligns the UAE with the OECD/G20 Pillar Two framework, which promotes fair taxation of multinational corporations. Without such regulations, large businesses could shift profits to low-tax jurisdictions, avoiding fair tax contributions.
By adopting this standard, the UAE enhances its reputation as a transparent and compliant global business hub while maintaining its competitive tax advantages for most local businesses.
Who Will Be Affected by the New Tax?
The DMTT primarily affects large multinational enterprises (MNEs) that generate over €750 million (AED 3 billion) in global annual revenue. Smaller businesses, startups, and companies operating primarily within the UAE remain unaffected by this tax.
Exemptions from the New Tax
| Exemption | Details |
|---|---|
| Small and Medium Enterprises (SMEs) | Not subject to the 15% tax, ensuring local business growth. |
| Free Zone Companies | Maintain existing tax benefits under specific regulations. |
| UAE-Based Enterprises | Businesses with revenue below AED 3 billion are exempt. |
This strategic approach ensures that only large global corporations bear the additional tax burden while protecting local entrepreneurship and small businesses.
Additional Tax Incentives for 2025 and Beyond
To balance the impact of the new tax, the UAE is introducing two new tax incentives aimed at fostering economic growth:
1. Refundable Tax Credit (Effective January 1, 2025)
To promote high-value employment, a refundable tax credit will be available for companies employing senior executives and professionals performing core business functions. The tax credit will be calculated based on eligible salary costs.
2. R&D Tax Incentive (Effective January 1, 2026)
The UAE is considering a tax incentive to encourage Research & Development (R&D) activities. The incentive is expected to provide a 30-50% tax credit on R&D expenditures, with refunds based on business revenue and employment levels.
These initiatives reinforce the UAE’s commitment to innovation, business growth, and investment attractiveness.
Key Advantages of Dubai’s New Tax Policies
While the introduction of new taxes in Dubai may pose challenges for multinational corporations, it also offers significant advantages for the UAE’s economy and business ecosystem.
Enhancing Financial Transparency
These tax measures promote greater financial accountability, ensuring that multinational companies contribute fairly to the global tax system and operate with transparency.
Strengthening Global Compliance
By aligning with OECD tax standards, the UAE solidifies its reputation as a globally responsible business hub, fostering trust among international investors and partners.
Driving Economic Growth
Revenue generated from these taxes will be reinvested into Dubai’s infrastructure, public services, and development projects, further enhancing the city’s appeal for businesses and residents.
Supporting Local Economic Growth
Beyond meeting global tax compliance, the revenue collected from these new policies will contribute to the development of essential services, such as transportation, healthcare, and education. This ensures long-term stability and prosperity for Dubai’s economy, benefiting both businesses and residents alike.
Impact of UAE’s New Tax on Multinational Enterprises
The introduction of the 15% Domestic Minimum Top-up Tax (DMTT) will have a significant effect on multinational enterprises (MNEs) operating in Dubai. These companies must adapt to the new tax regulations while ensuring compliance with global tax frameworks.
Compliance with International Tax Laws
MNEs will need to align with the 15% minimum tax rate as per the OECD’s global tax standards. This may require restructuring financial strategies and reviewing current tax practices to remain compliant.
Potential Increase in Operating Costs
With the implementation of the new tax policy, businesses may face higher operating expenses. Companies must plan ahead by adjusting their budgets, ensuring tax efficiency, and optimizing financial operations.
Strategic Advantages for MNEs
While the new tax may pose financial challenges, it also brings credibility. By adhering to international tax regulations, multinational companies can enhance their reputation and build stronger relationships with global investors and partners.
Who is Exempt from the UAE’s New Tax?
Although the new tax primarily targets large multinational corporations, the UAE government has ensured that certain businesses remain exempt to maintain its business-friendly environment.
Exemptions for SMEs (Small & Medium Enterprises)
To support local entrepreneurs and startups, SMEs operating within the UAE are not subject to the 15% tax. This helps small businesses grow and thrive without additional financial burdens.
Free Zone Companies Remain Unaffected
Businesses operating in designated free zones will continue to enjoy their existing tax benefits, provided they comply with the relevant regulations. This ensures that Dubai remains an attractive destination for international business investments.
How Do UAE Taxes Compare Globally?
Despite the new 15% tax rate for large MNEs, the UAE remains one of the most tax-friendly jurisdictions compared to other global business hubs:
| Country | Corporate Tax Rate | Applicability |
|---|---|---|
| UAE | 15% | Only for large MNEs with €750 million+ in revenue |
| UK | 19-25% | All corporations |
| Singapore | 17% | All taxable corporations |
The UAE remains attractive due to 0% personal income tax, existing tax-free zones, and a stable, business-friendly environment.
How Will the UAE Use the Revenue from These Taxes?
The tax revenue will support critical economic and social initiatives, including:
- Public Infrastructure Development – Investments in transportation, healthcare, and utilities.
- Technological Advancements – Increased funding for innovation, research, and emerging industries.
- Social Welfare Programs – Enhanced education, healthcare, and community services.
These initiatives will contribute to long-term economic stability and further cement Dubai’s status as a premier global business hub.
How UAE’s New Tax Will Impact Businesses & How to Prepare
The introduction of new corporate taxes in the UAE, including the 15% Domestic Minimum Top-up Tax (DMTT), marks a significant shift for businesses, particularly multinational enterprises. To navigate these changes effectively, companies must take proactive measures to ensure compliance and minimize financial risks.
Key Steps for Businesses to Prepare
1. Financial Planning & Budgeting
Companies should conduct a thorough review of their financial structures and allocate necessary funds to meet new tax obligations. Exploring cost-saving measures and optimizing operational expenses will help mitigate the impact of increased tax liability.
2. Consulting Tax Advisors
Seeking expert advice from tax professionals is crucial to understanding and complying with the new regulations. Experienced consultants can provide strategies to align business operations with the evolving tax landscape while maximizing available incentives.
3. Long-Term Strategic Adjustments
To remain competitive, businesses should integrate tax considerations into their long-term financial and operational planning. Staying informed about regulatory updates and adapting tax strategies accordingly will be essential for sustainable growth in the UAE.
The UAE’s introduction of the Domestic Minimum Top-Up Tax (DMTT) at 15%, effective January 1, 2025, marks a significant shift in its tax landscape. However, only large multinational enterprises exceeding €750 million in revenue will be affected, while small businesses, startups, and Free Zone companies remain exempt.
At the same time, new tax incentives such as the R&D tax credit and refundable tax credit will encourage economic growth and innovation. With its business-friendly policies, 0% personal income tax, and global connectivity, Dubai remains one of the most attractive destinations for businesses and investors worldwide.
Frequently Asked Questions (FAQs)
What is the UAE’s new corporate tax policy?
The UAE introduced a Corporate Income Tax (CIT) at a standard rate of 9% in June 2023. Additionally, from January 1, 2025, a 15% Domestic Minimum Top-Up Tax (DMTT) will apply to large multinational enterprises (MNEs) with annual global revenues exceeding €750 million (AED 3 billion).
What is the Domestic Minimum Top-Up Tax (DMTT)?
The DMTT is a tax measure ensuring that multinational companies operating in the UAE pay at least 15% tax on their profits. It aligns with the OECD’s Global Minimum Tax (Pillar Two) to prevent tax avoidance by large corporations.
Who is affected by the new tax regulations?
The new 15% tax applies only to multinational enterprises (MNEs) with global revenues exceeding €750 million in at least two of the past four financial years. Small businesses, startups, and UAE-based companies below this threshold are not impacted.
Why is the UAE implementing this tax?
The UAE is aligning with international tax standards under the OECD/G20 Pillar Two framework. This move prevents profit shifting to low-tax jurisdictions and enhances the UAE’s reputation as a transparent, compliant business hub.
Are small and medium enterprises (SMEs) affected by the tax?
No, SMEs operating within the UAE are exempt from the 15% tax. The tax is designed to target large multinational corporations while supporting local business growth.
Will free zone companies be subject to the new tax?
No, businesses operating in designated free zones will continue to enjoy existing tax benefits as long as they comply with relevant regulations.
