Purpose of the Tax: Enhance economic transparency and combat tax evasion to boost competitiveness and increase government revenues.
UAE to Apply 15% Corporate Tax on Multinational Companies for Global Tax Justice
The United Arab Emirates has announced the implementation of a 15% domestic top-up tax on the profits of large multinational corporations, effective January 1, 2025. This move aims to align with international tax standards and ensure that companies pay their fair share of taxes in the countries where they operate, regardless of the location of their headquarters.
Objectives of the New Tax
This tax is part of the โTwo-Pillar Solutionโ initiative led by the OECD and aims to:
Combat tax evasion by targeting practices where companies shift profits to low-tax jurisdictions.
Ensure tax fairness by guaranteeing that both local and international companies pay the same tax rate, fostering a level playing field.
Increase government revenue to support development projects and infrastructure funding.
Importance of the Tax in the UAE
As a global economic hub attracting numerous multinational firms, the UAEโs implementation of this tax is a strategic step to enhance its economic competitiveness and maintain its financial reputation. It also contributes to sustainable development through the use of tax revenues to fund strategic initiatives.
Details of the New System
The tax will apply to companies generating consolidated global revenues of โฌ750 million or more in at least two of the four financial years preceding the year the system takes effect. The Ministry of Finance confirmed that the system is aligned with the OECDโs model rules, with more detailed guidelines expected to be released later.
Tax Incentives to Support Innovation
As part of its efforts to support the economy, the ministry is considering new incentives, including:
R&D Incentive: Set to take effect on January 1, 2026, offering tax credits ranging from 30% to 50% of eligible R&D expenses to boost innovation.
High-Value Employment Incentive: Launching alongside the tax in 2025, this will encourage firms to attract talent that contributes significant economic value.
Expected Impact
The new system is expected to yield multiple benefits, such as:
Increased government revenue.
Greater transparency and tax fairness.
Attraction of new investments and achievement of sustainable economic growth.
While the tax may affect the competitiveness of some smaller companies and increase operational costs, the Ministry believes the benefits outweigh the challenges.
In conclusion, the implementation of a 15% tax on multinational corporations marks a significant milestone in the UAEโs journey toward a more sustainable and inclusive economy. By adopting these policies, the UAE reaffirms its commitment to global principles and its position as a competitive global business hub.
