UAE Introduces Domestic Minimum Top-up Tax from 2025, Considering Incentives for Innovation and High-Value Employment

On December 9, the UAE announced the introduction of a domestic minimum top-up tax (DMTT) effective from January 1, 2025, and proposed tax incentives to support innovation and creation of high-value employment.

By Melissa Cyrill

The UAE Ministry of Finance has unveiled significant updates to the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, signaling a progressive step toward aligning with international tax standards and fostering economic growth.

The key amendments, announced on December 9, 2024, include the introduction of a domestic minimum top-up tax and proposed tax incentives aimed at supporting innovation and high-value employment.

Domestic minimum top-up tax (DMTT)

The DMTT, set to take effect for financial years starting on or after January 1, 2025, reflects the UAE’s adoption of the Organisation for Economic Co-operation and Development’s (OECD) Two-Pillar Solution. Under Pillar Two, large multinational enterprises (MNEs) must meet a minimum effective tax rate of 15 percent on profits in every country where they operate.

This measure will apply to MNEs with consolidated global revenues of €750 million or more in at least two of the four financial years preceding its applicability. The UAE’s DMTT framework will align closely with the OECD’s Global Anti-Base Erosion (GloBE) Model Rules, reinforcing the country’s commitment to fostering a transparent and equitable tax environment.

Further legislative details on the DMTT are expected to be released by the Ministry in the coming months.

Tax incentives to drive growth and innovation

To enhance its appeal as a global business hub, the UAE is considering introducing new corporate tax incentives to promote sustainable growth, innovation, and high-value employment.

1. Research and development (R&D) tax incentive

Expected to be effective from January 1, 2026, the proposed R&D tax incentive aims to encourage innovation and economic growth. Businesses conducting qualifying R&D activities within the UAE could benefit from a refundable tax credit of 30-50 percent on eligible expenditures. These qualifying activities will align with OECD’s Frascati Manual guidelines, ensuring international compliance and robust standards.

2. High-value employment incentive

A refundable tax credit targeting high-value employment activities is also being considered, with implementation proposed for January 1, 2025. This incentive aims to reward businesses employing senior professionals, including C-suite executives and other key personnel engaged in core business functions that significantly contribute to the UAE’s economic competitiveness.

The credit will be calculated as a percentage of eligible salary costs, further encouraging the recruitment of top-tier talent to strengthen the UAE’s global standing as a business-friendly destination.

Both initiatives underscore the UAE’s commitment to fostering an innovative and competitive business ecosystem, aligned with national strategic objectives.

Looking ahead

The proposed tax incentives and the introduction of the DMTT mark a critical step in the UAE’s pursuit of sustainable economic growth while aligning its tax framework with global standards. The Ministry of Finance will issue further guidance and legislative details to provide clarity for businesses navigating these changes.

These developments are expected to enhance the UAE’s attractiveness to multinational corporations and innovative enterprises, reinforcing its status as a leading global business hub.

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