The UAE is set to implement a 15% corporate tax rate for large multinational enterprises (MNEs) starting from financial years beginning January 1, 2025, as part of its alignment with the OECD’s global minimum corporate tax framework. This move builds on the UAE’s introduction of a 9% federal corporate tax in 2023, which applied to taxable profits above AED 375,000.
Key Details of the New Tax
- Applicability:
- Targets multinational enterprises with global consolidated revenues of €750 million ($793 million) or more.
- Based on revenues recorded in at least two of the four financial years preceding the tax year.
- Purpose:
- Implements the OECD’s Global Anti-Base Erosion (GloBE) Model Rules, aimed at reducing tax competition and ensuring fair taxation.
- Contributes to global efforts to address tax challenges in an increasingly digitalized and globalized economy.
- Effective Date:
- Starts with financial years on or after January 1, 2025.
Incentives for Economic Competitiveness
Alongside the tax reform, the UAE Ministry of Finance has proposed corporate tax incentives to maintain its economic appeal and foster innovation:
- R&D Tax Incentive:
- Encourages research and development activities.
- Offers a refundable 30%-50% tax credit based on qualifying R&D expenditures conducted within the UAE.
- Set to take effect in January 2026.
- High-Value Employment Incentive:
- Provides a refundable tax credit for businesses employing individuals in high-value roles, such as C-suite executives or senior personnel.
- Aims to boost activities that deliver significant economic benefits.
- Effective January 2025.
Broader Context
- Alignment with Global Standards:
- Part of a global initiative under the OECD’s two-pillar solution, ensuring large companies pay a minimum 15% tax on profits in each country they operate.
- Impact on MNEs:
- Although MNEs anticipated this change, the tax only takes effect 19 months after the UAE’s corporate tax introduction, allowing for adjustment.
- Economic Diversification:
- Builds on the UAE’s diversification strategy, which includes the 2018 introduction of 5% VAT and other fiscal measures to reduce dependence on oil revenues.
Economic Implications
- Increased Government Revenue:
- Taxes contributed AED 272.6 billion to UAE government revenues during the first three quarters of 2024.
- Strengthened Global Competitiveness:
- Incentives for R&D and high-value employment aim to enhance the UAE’s appeal as a business hub.
- Challenges for Businesses:
- Large MNEs may face increased compliance and financial obligations, requiring strategic adjustments.
Conclusion
The UAE’s introduction of a 15% corporate tax on MNEs signals a shift towards greater alignment with global tax standards while ensuring its competitiveness through innovative tax incentives. This balanced approach reflects the country’s commitment to sustainable economic growth and global integration.
