UAE Announces New Tax Measures with Clarified Incentives and Exemptions
The UAE Ministry of Finance has released further details on the newly introduced Domestic Minimum Top-up Tax (DMTT), following the issuance of Cabinet Decision No. 142 of 2024 concerning the Top-up Tax for Multinational Enterprises. This announcement builds on the Ministry’s earlier communication made on December 9, 2024.
Overview of the UAE Domestic Minimum Top-up Tax (DMTT)
The DMTT is designed in alignment with the GloBE Model Rules established by the Organisation for Economic Co-operation and Development (OECD). It targets Multinational Enterprises (MNEs) operating within the UAE that report annual global revenues of €750 million ($775 million) or more in the consolidated financial statements of their Ultimate Parent Entity for at least two of the four financial years preceding the application of the DMTT.
Key Features and Exemptions
- The DMTT offers relief through a Substance-based Income Exclusion, which reduces the net Pillar Two income subject to taxation. This is determined by deducting an amount based on payroll expenses and the carrying value of tangible assets to calculate Excess Profit for DMTT purposes.
- Consistent with the GloBE Model Rules, the DMTT includes a de minimis exclusion. Entities that meet specific criteria under this rule will have their DMTT liability reduced to zero.
- To maintain the UAE’s position as a prime investment destination, Investment Entities, as defined by the new regulations, are excluded from the DMTT.
- As a transitional measure to foster economic growth, the DMTT will not apply during the initial stages of an MNE Group’s operations in the UAE. This exemption is valid provided that none of the UAE-based entities are owned by a parent entity subject to a Qualified Income Inclusion Rule in another jurisdiction.
Interpretation and Access to Legislation
The DMTT should be interpreted in accordance with the OECD’s Commentary and Administrative Guidance. For more details, please reach out AZ Advisory Experts: info@az-group.ae or visit www.az-group.ae.
