UAE’s Newest Corporate Tax Law: ‘Auditing’ the Effects on Small Enterprises 

KEY TAKEAWAYS

• The UAE Ministry of Finance will implement the Domestic Minimum Top-up Tax (DMTT) at a 15% rate starting 1 January 2025, targeting large multinational enterprises (MNEs) with global revenues of €750 million or more.
• The DMTT aligns with the OECD/G20 BEPS 2.0 initiative, ensuring fairer tax practices by subjecting MNEs to a minimum global tax rate and combating tax avoidance through top-up taxes.
• The DMTT reinforces the UAE’s position as a compliant and transparent business hub, creating potential opportunities for SMEs to attract foreign investments and collaborate with global entities.
• The DMTT does not directly impact SMEs in the UAE since the tax applies only to MNEs meeting the revenue threshold. While SMEs won’t be taxed under the DMTT, indirect effects may arise if large MNEs adjust pricing, supply chains, or contractual terms to offset their increased tax burden.
• Businesses with taxable income below AED 375,000 will continue to be exempt from paying the corporate tax, and small businesses will continue to benefit from the small business relief, which simplifies compliance and eliminates tax obligations within a set threshold.
• Crypto companies operating in the UAE, though potentially below the DMTT threshold, should maintain robust governance, accurate accounting records, and transparent financial statements to remain compliant and protect their long-term interests in an evolving regulatory landscape.

INTRODUCTION

The United Arab Emirates’ (“UAE”) Ministry of Finance (“MOF”) recently announced the implementation of a Domestic Minimum Top-up Tax (“DMTT”) on multi-national enterprises.[1] The tax would be fifteen per cent (15%) of the company’s total annual profits. The MOF intends to introduce the tax on 1 January 2025 as an amendment to the domestic tax law, with further details expected in the upcoming months.

Under the Federal Decree-Law No. (47) of 2022, a corporate tax of nine per cent (9%) applies to taxable income derived within the UAE.[2] The DMTT will effectively increase the corporate tax applicable to large multinational enterprises from the current nine per cent (9%) to fifteen per cent (15%).

GLOBAL CONTEXT

The introduction of the DMTT is part of a global push towards more equitable tax practices. The Organisation for Economic Co-operation and Development (“OECD”)/G20 Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”) is a joint initiative by the OECD and G20 members introduced in 2013 to combat tax avoidance by large multi-national enterprises.[3] The BEPS 2.0 agreement, released in December 2021, provided for two “pillars”.

Pillar One is aimed at re-allocating profits of multi-national enterprises from the jurisdiction where they earn their income to the jurisdictions where they sell their products and services, in proportion to the revenue generated in each such jurisdiction.[4] Conversely, Pillar Two aims to ensure that multi-national enterprises are subject to a minimum tax of fifteen per cent (15%) on global corporate profits. Where the tax rate falls below this threshold, enterprises would be subject to a top-up tax to increase the effective tax rate.[5]

More than 140 countries are expected to implement similar minimum taxes to comply with Pillar Two by 2025, with Bahrain among the most recent adopters.[6] The goal of the DMTT is to align UAE tax policies to these global tax norms. The DMTT’s primary focus is to address tax evasion by large companies operating through complex group structures in different jurisdictions, ensuring they are taxed appropriately at a singular point.

CRITERIA FOR APPLICABILITY

The DMTT will apply to multinational enterprises operating in the UAE that generate a consolidated global revenue of €750 million (approximately AED 3 billion) or more in two of the four financial years immediately preceding the financial year. The DMTT will be effective for financial years starting or after 1 January 2025. As such, for the financial year starting in 2025, the assessment year would start in 2024, and the revenue generated for 2021, 2022, 2023, and 2024 will be relevant for determining the applicability of the tax.

IMPLICATIONS FOR SMEs UNDER THE EXISTING TAX REGIME

The DMTT directly targets large multinational companies with a global presence, but its introduction raises questions about any potential ripple effects on small and medium-sized enterprises (“SMEs”) in the UAE. SMEs will not face any direct impact from the DMTT as the top-up tax only applies to multi-national companies meeting the revenue threshold of €750 million—a level that most SMEs are unlikely to meet.

Despite this, the introduction of the DMTT is part of a broader tax reform agenda, which could indirectly influence the SME ecosystem in various ways. Large multinational enterprises operating in the UAE may re-evaluate their pricing, supply chains, or service structures to offset the additional tax being imposed. Accordingly, SMEs collaborating with such multinational enterprises may face indirect adjustments to their contractual or business terms. Conversely, however, adopting global tax standards reinforces the UAE’s reputation as a transparent and compliant business hub, creating more opportunities for SMEs to engage with global entities and attract more foreign investments.

Under the current tax regime, the corporate tax of nine per cent (9%) only applies to taxable persons incurring a taxable income above AED 375,000.

IMPLICATIONS FOR CRYPTO COMPANIES

The UAE’s growing reputation as a hub for crypto and blockchain enterprises brings a unique dimension to the DMTT’s introduction. While many crypto companies currently operating in the UAE may not meet the revenue threshold for DMTT applicability, they should still remain vigilant as the tax landscape evolves. Maintaining precise accounting records, transparently managing revenue streams, and preparing thorough financial statements are crucial measures for ensuring compliance. By aligning with international tax standards and adopting robust reporting practices, crypto businesses can better position themselves for growth in this dynamic, innovation-driven environment.

Achieving these standards hinges on solid governance—an area where the rapid pace and experimental nature of startups can pose challenges. Nonetheless, founders have a responsibility to elevate their governance practices if they wish to operate successfully within the UAE’s increasingly regulated yet business-friendly ecosystem. Implementing disciplined processes now will not only fortify their compliance posture but also help them thrive sustainably amid the shifting regulatory landscape.

CONCLUSION

The introduction of the DMTT marks a significant milestone in the UAE’s commitment to global tax transparency and fair competition. For SMEs, the immediate impact will be negligible, as the tax specifically targets large multinational corporations with substantial global revenues. Hence, they can rest assured that their tax liabilities will remain unchanged under the current regime.

However, SMEs should view this development as an opportunity to strengthen their compliance practices and explore potential growth opportunities within a more regulated and transparent economic environment. By staying informed and adaptive, small businesses in the UAE can continue to thrive while benefiting from the country’s robust and evolving business ecosystem.

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[1] Ministry of Finance announces amendments to Corporate Tax Law, Emirates News Agency – WAM (Dec. 9, 2024), https://www.wam.ae/en/article/b6lsvgy-ministry-finance-announces-amendments-corporate

[2] Article 3(1), Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses.

[3] Base erosion and profit shifting (BEPS), Organisation for Economic Co-operation and Development, https://www.oecd.org/en/topics/policy-issues/base-erosion-and-profit-shifting-beps.html

[4] What are the OECD Pillar 1 and Pillar 2 international taxation reforms?, Tax Policy Center, https://taxpolicycenter.org/briefing-book/what-are-oecd-pillar-1-and-pillar-2-international-taxation-reforms

[5] Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Bare Erosion Model Rules (Pillar Two), Organisation for Economic Co-operation and Development, https://www.oecd.org/tax/beps/pillar-two-model-rules-in-a-nutshell.pdf

[6]Carolyn Wright, Bahrain Issues Domestic Minimum Top-up-Tax Legislation, EY Global, https://www.ey.com/en_gl/technical/tax-alerts/bahrain-issues-domestic-minimum-top-up-tax-legislation.

[7] Article 21 of the Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses, read with Article 2 of the Ministerial Decision No. (73) of 2023 on Small Business Relief for the Purposes of Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses.