Corporate Tax in UAE: Understanding the 15% Rate for Large Multinationals

As part of the global tax reform led by the Organization for Economic Co-operation and Development (OECD), the UAE is set to introduce a 15% Domestic Minimum Top-up Tax (DMTT) on large multinational corporations.

Effective from 1st January 2025, this move aligns with the Global Minimum Tax (Pillar Two) under the OECD’s Base Erosion and Profit Shifting (BEPS) framework.

The goal is to ensure multinational enterprises (MNEs) contribute a fair share of corporate tax in UAE, regardless of where their profits are generated.

Who Will Be Impacted?

The new tax rate will apply to multinational corporations meeting specific conditions:

  • Revenue Requirement: Companies with a consolidated global turnover of at least €750 million (approximately AED 3.15 billion) in the past two fiscal years will be affected.
  • UAE-Based Earnings: The tax applies to income generated from operations in the UAE if the company falls under the OECD’s Pillar Two framework.

Smaller businesses that do not achieve the €750 million base will continue under the UAE’s existing corporate tax in UAE system, which imposes a 9% tax on taxable income exceeding AED 375,000.

Identifying the Global Minimum Tax

The Global Minimum Tax is designed to prevent large corporations from minimizing their tax obligations through profit shifting. It includes two primary rules:

  • Income Inclusion Rule (IIR): This ensures that the parent company of an MNE group pays at least the minimum tax rate on global income.
  • Undertaxed Profits Rule (UTPR): This applies a top-up tax if income within an MNE group is taxed below the minimum rate in any jurisdiction.

The UAE will implement the IIR, enabling it to collect the difference through a top-up tax on UAE-based multinational groups.

Regulatory Requirements and Compliance Standards

The implementation of the 15% tax rate brings significant changes for affected businesses, making immediate corporate tax measures essential.

Revising Pricing Strategies

Multinational companies must review and adjust their transfer pricing policies to align with the new regulations. This will involve maintaining accurate documentation, providing justification for intercompany transactions, and ensuring fair pricing structures.

Rethinking Business Models

The corporate tax in UAE reform may encourage businesses to reassess their corporate structures, including:

  • Exploring tax-efficient operational strategies.
  • Utilizing double taxation agreements (DTAs) to reduce tax burdens where applicable.

Reporting and Governance

To comply with the new requirements, affected companies will need to:

  • Using systems for detailed financial reporting and country-by-country reporting (CbCR).
  • Ensure transparency in financial records and reconcile statements with taxable income.

Penalties for Non-Compliance

Failure to adhere to the new tax regulations may result in financial penalties. Companies should evaluate their internal governance processes to stay in line with UAE and global tax standards.

Strategic Benefits for Businesses

Despite the higher tax rate, the UAE remains a highly attractive business centre. Its strong infrastructure, investor-friendly environment, and commitment to international tax transparency continue to make it a preferred choice for multinational corporations. Moreover, businesses may benefit from certain exemptions, such as relief for payroll and tangible asset investments, potentially lowering the effective tax burden.

Preparing for the New Tax Structure

To stay ahead, businesses should:

  • Evaluate Tax Liabilities: Assess whether the new rules apply and determine the financial impact.
  • Review Pricing Agreements: Ensure intercompany transactions align with OECD regulations.
  • Analyse Free Zone Benefits: Understand whether tax incentives still apply.
  • Strengthen Compliance Processes: Implement robust systems for documentation and reporting.

Balancing Compliance with Business Growth

The introduction of the 15% corporate tax in UAE signals the nation’s commitment to global tax reforms while maintaining its appeal as a competitive business destination. Companies must act proactively to make these changes, ensuring both compliance and strategic tax planning.

Staying compliant with evolving tax regulations is crucial for multinational businesses operating in the UAE. Positive planning and expert guidance can help companies adapt to these changes while maintaining operational efficiency.