UAE’s New 15% Domestic Minimum Top-up Tax – DMTT: Action Plan for Free Zones and Beyond

The United Arab Emirates has introduced a significant new element to its fiscal framework: a 15% Domestic Minimum Top-Up Tax (DMTT). This policy aligns the UAE with major global tax reforms initiated by the Organisation for Economic Co-operation and Development (OECD) under its Pillar Two framework.

For multinational enterprises (MNEs) operating in the UAE, this marks a fundamental change. It requires a thorough review of financial strategies, compliance procedures, and business structures. The regulation aims to increase economic transparency and create a level playing field, reinforcing the UAE’s status as a competitive global business hub. The new tax will be effective for financial years that begin on or after January 1, 2025.

Who is Subject to DMTT?

It is important to understand that the DMTT is not a blanket increase in corporate tax for all businesses. It is a specific measure designed for a particular group of companies.

The tax applies to MNE groups that report consolidated global revenues exceeding EUR 750 million in at least two of the four previous fiscal years. This high threshold ensures the legislation is focused on large, globally integrated corporate structures. Small and medium-sized enterprises (SMEs) will not be affected by this rule.

How the Domestic Minimum Top-Up Tax (DMTT) Works?

The central principle of this legislation is to ensure that large MNEs pay a minimum effective tax rate (ETR) of 15% on their profits in every country where they operate.

The DMTT gives the UAE the authority to collect a “top-up tax” if an MNE’s profits within the UAE are taxed at a rate below 15%. This is a strategic measure. It allows the UAE to secure this tax revenue domestically, rather than allowing another jurisdiction to collect it under the global Pillar Two rules (such as the Income Inclusion Rule or Undertaxed Profits Rule). This protects the UAE’s tax base while adhering to international standards.

A top-up tax will be levied on the UAE-based entities of an MNE group whenever the group’s overall effective tax rate in the UAE is below the 15% minimum. The calculation method is complex and is designed to align with the OECD’s Global Anti-Base Erosion (GloBE) Model Rules.

Important Note on Free Zones:

Companies operating within the UAE’s free zones, which may benefit from a 0% or other preferential corporate tax rate on their qualifying income, are not excluded from this framework. An MNE group with entities in a free zone must still calculate its effective tax rate across all of its UAE operations to determine if any top-up tax liability exists.

What Multinational Businesses Should Do Now?

Proactive and strategic planning is essential for MNEs to successfully manage the impact of this new tax landscape. The following steps are critical for ensuring a smooth transition.

1. Conduct a Comprehensive Impact Assessment: Businesses must immediately evaluate the financial and operational effects of the DMTT. This involves a detailed review of global corporate structures, profit allocation models, and financial reporting systems to confirm whether the group meets the revenue threshold and if its UAE tax rate falls below 15%.
2. Align with Global Reporting Standards: The DMTT introduces a new layer of compliance. MNEs must ensure their accounting systems are capable of capturing the specific data required for the GloBE calculations, which can differ from standard financial accounting. The top-up tax return is due to be filed with the Federal Tax Authority (FTA) within 15 months of the fiscal year-end, with an 18-month grace period for the first transition year.
3. Utilize Available Safe Harbour Provisions: The legislation includes several “safe harbour” rules designed to simplify compliance. MNEs should carefully assess their eligibility for these provisions, such as the Transitional Country-by-Country Reporting (CbCR) Safe Harbour. These can significantly reduce the reporting burden and may even reduce the top-up tax liability to zero under specific conditions.
4. Review Economic Substance and Transfer Pricing: This new regime places even greater emphasis on demonstrating genuine economic activity in the UAE. MNEs should also re-examine their transfer pricing policies and documentation to ensure all intercompany transactions strictly follow the arm’s length principle, in line with both the UAE Corporate Tax Law and OECD guidelines.

The introduction of the DMTT is more than a regulatory update; it represents a strategic evolution in the UAE’s economic policy. It demonstrates a firm commitment to global tax transparency and governance. For MNEs, swift and strategic adaptation is no longer an option but a requirement for continued growth and compliance.