UAE Ministry Of Finance Introduces Key Amendments To Corporate Tax Law For Business Growth

The UAE Ministry of Finance has announced changes to Federal Decree-Law No. 47 of 2022 concerning corporate taxation. These updates introduce a Domestic Minimum Top-up Tax (DMTT) and propose tax incentives to foster growth and innovation. The DMTT will be effective from 1st January 2025, aligning with global tax standards set by the OECD.

Following Federal Decree Law No. 60 of 2023, the DMTT will apply to financial years starting on or after 1st January 2025. This initiative supports the OECD's Two-Pillar Solution for a fair tax system. The DMTT mandates that large multinational enterprises (MNEs) pay a minimum effective tax rate of 15% on profits in each country they operate.

The DMTT targets MNEs in the UAE with consolidated global revenues of €750 million or more in at least two out of four preceding financial years. The UAE's implementation will align closely with the OECD’s GloBE Model Rules. Further legislative details will be provided by the Ministry of Finance soon.

The UAE is enhancing its business environment to meet strategic goals like economic competitiveness and ease of doing business. To support sustainable growth, innovation, and investment, new Corporate Tax Incentives are being considered under Federal Decree-Law No. 47 of 2022.

A Research and Development (R&D) Tax Incentive is proposed to encourage R&D activities within the UAE, fostering innovation and economic growth. Based on public consultations held in April 2024, this incentive might start for tax periods beginning on or after 1st January 2026.

The R&D tax incentive will be expenditure-based, offering a potential tax credit between 30-50 percent. It will be refundable depending on revenue and employee numbers in the UAE. Qualifying R&D activities must align with OECD’s Frascati Manual guidelines and occur within the UAE.

Another proposed incentive is a refundable tax credit for high-value employment activities, aiming to stimulate innovation and enhance global competitiveness. This incentive is expected to begin on 1st January 2025, covering eligible salary costs for employees engaged in high-value roles like C-suite executives performing core functions that add significant value to the economy.

The final form and implementation of these proposed incentives depend on legislative approvals. The Ministry of Finance will provide further guidance for taxpayers regarding these incentives soon.

With inputs from WAM