The global tax system is undergoing a significant evolution to ensure that large multinational enterprises (MNEs) share a fair tax burden across their operating countries.
The global minimum tax rate initiative, led by the Organization for Economic Cooperation and Development (OECD), requires large multinational enterprises ("MNEs") with global revenues of at least 750,000,000 Euro to pay at least 15% tax on their profits in each country in which they operate.
This framework, developed by the OECD, has been adopted by 140 countries, including the UAE, and aims to reduce harmful inter-country tax competition and promote greater tax certainty and global balance.
In order to adapt to this initiative, the United Arab Emirates is also implementing various regulations. With effect as of 1st January 2025, a minimum tax rate of 15% will apply to large multinational enterprises (MNEs) in the UAE. The tax will apply to MNEs with global revenues of at least 750,000,000 Euro in two of the last four years. This step reflects the UAE's commitment to the OECD's Two Pillar Solution, which aims to create a fair and transparent tax system.
Apart from the new global minimum tax, the UAE introduced a new corporate tax law in 2023, imposing a 9% tax on profits exceeding 375,000 AED, whilst profits lower than this threshold are subject to 0% taxation. Businesses with an annual turnover of less than AED 1 million are exempt from corporate tax, ensuring that smaller companies are not oppressed by tax liabilities.
UAE is also considering new tax incentives to stimulate innovation and enhance economic competitiveness. The Ministry of Finance suggests introducing expenditure-based R&D tax incentives, typically encompassing mechanisms such as tax credits, enhanced deductions, investment deductions, accelerated depreciation. These include a proposal for a research and development (R&D) tax credit, effective as of 1st January 2026, offering a 30% to 50% refund for qualifying R&D activities. The tax credit will be refundable depending on the revenue and number of employees of the business in the UAE.
Another proposed incentive is a refundable credit for high-value employment activities targeting senior executives and key personnel who significantly contribute to the UAE economy, to be effective from 1st January 2025.
These measures are part of the UAE's greater comprehensive strategy to diversify its economy, reduce its dependency on oil and increase world competitiveness. By implementing the global minimum tax and introducing these new incentives, the UAE is seeking to align with international standards while encouraging innovation and maintaining its position as a leading global business hub.
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