Dubai: The UAE has confirmed a set of tax incentives for subsidiaries of multinational companies operating in the country.
These multinational entities, as of January 1, 2025, are liable for a 15% corporate tax rate as against the 9% for other businesses that come under the tax cover.
As part of the new incentives, the ‘domestic top up tax’ for those MNC entities will be rated at 0% provided they meet the ‘relevant de minimis exclusion criteria’.
Setting ‘de minimis’ threshold
In tax terms, the de minimis refers to certain income coming under a certain ceiling. For instance, the UAE tax rules allow businesses in qualifying free zones to pay 0% tax if their ‘non-qualifying income’ is less than 5% of total revenue. Or Dh5 million, whichever is lower.
‘Investment activities’
In the second tax incentive announced for MNC businesses in the UAE, the domestic minimum top up tax of 15% will exclude ‘investment entities’. This is done to ‘bolster the UAE’s competitiveness as a leading investment hub’, said a statement issued by the Ministry of Finance late on Friday (February 8).
UAE tax consultants say that the move on investment activities was expected. “There is a significant intake of new MNCs into the UAE, whether directly or through new subsidiaries,” said a consultant. “If these new investment activities are provided clear corporate tax relief measures, it will be a major plus for wider economic activity.”
Pillar 2 tax
Multinational companies in the UAE with a certain income threshold are taxed at a minimum 15%. This is also in line with the ‘Pillar 2’ requirements that the big MNCs with widespread global operations come under in major economies.
In December last, Kuwait approved a 15% tax on MNCs, while Oman and Qatar too have made a move on imposing a 15% ‘domestic top-up tax’ on such operations.
“The Pillar 2 rules require large multinational enterprises (MNEs) to pay a minimum effective tax rate of 15% on profits in every country where they operate,” said a statement issued by the UAE Ministry of Finance.
Scope of UAE’s top-up tax
The UAE’s domestic minimum top-up tax’ is aligned with the ‘GloBE Model Rules’ issued by the OECD group of major economies.
The UAE DMTT apply to entities that are part of MNCs operating in the UAE with annual global revenues of 750 million euros or more in the combined financial statements of the parent enterprise in ‘at least two out of the four financial years’ immediately preceding the financial year in which the UAE DMTT applies.
The minimum 15% tax in the UAE went into effect January 1, 2025.
Another tax relief
There is also tax relief provided under a ‘substance-based income exclusion’.
This is a ‘carve out which reduces net Pillar 2 income subject to the UAE DMTT’. This determines the ‘excess profit for the purposes of computing the UAE DMTT by an amount calculated based on payroll and the carrying value of tangible assets’, the Ministry of Finance added.
In December, the UAE confirmed it will extend a refundable tax credit for ‘high-value employment activities’.
It was to ‘encourage businesses to engage in activities that deliver significant economic benefits, stimulate innovation, and enhance the UAE’s global competitiveness’.
The tax credit would be granted as a percentage of eligible salary costs for employees engaged in such high-value employment activities. This would include those of top executives and senior personnel ‘performing core business functions that add substantial value to the UAE economy’.
No tax on ‘initial phase’
There will also be no UAE domestic minimum top-up tax during the initial phase of a multinational’s international activity. This is done ‘as part of a transitional measure and to create a tax environment conducive to economic growth’, said the Ministry.
To be eligible, the MNC must ensure ‘none of the of the ownership interests of the entities located in the UAE are held by a parent entity subject to a qualified income inclusion rule in another Jurisdiction’.
Essentially, such operations must not have claimed tax benefits in another jurisdiction.
