UAE Domestic Minimum Top-up Tax (DMTT) – From 2025

Domestic Minimum Top up Tax, DMTT | UAE Tax Announcement, effective from 01 Jan 2025

The UAE Ministry of Finance has recently announced important updates regarding specific provisions of Federal Decree-Law No. 47 of 2022, which pertains to the taxation of corporations and businesses.

What is Top up Tax : The top-up tax is a tax levied on multinational enterprises.

What is Multinational Enterprise: An entity and/or one or more of its member entities located in the State or in a foreign jurisdiction, a

What is effective date of the Domestic Top up Tax in UAE : Domestic Minimum Top-up Tax will be effective in the UAE for financial years starting on or after 1st January 2025

What is Organization for Economic Co-operation and Development’s (OECD) Two-Pillar Solution : The Pillar Two rules require large multinational enterprises (MNEs) to pay a minimum effective tax rate of 15% on profits in every country where they operate.

Eligibility: The Domestic Minimum top Tax will apply to multinational companies operating in the UAE if their combined global revenues are €750 million or more in at least two of the four financial years before the year the tax comes into effect. (current financial year which, begin on or are after 01 January 2025) 

Latest Regulations: The UAE Ministry of Finance will issue the Domestic Minimum top Tax legislation soon, according to the latest reports.

The Domestic Top-Up Tax in General 

The Domestic Top-Up Tax is a tax policy designed to align with the Global Minimum Tax framework introduced by the OECD under the Inclusive Framework on BEPS (Base Erosion and Profit Shifting). This tax ensures that multinational enterprises (MNEs) pay a minimum effective tax rate on their global profits.

Key Features:

1. Global Minimum Tax Compliance: The policy aligns domestic tax systems with the global standard, ensuring MNEs pay at least the minimum tax rate set by international agreements (currently 15%).

2. Application to MNEs: It specifically applies to multinational enterprises with consolidated global revenues exceeding a set threshold (e.g., €750 million in line with OECD guidelines).

3. Fiscal Years: The tax applies to fiscal years starting on or after the date of implementation specified by the local jurisdiction.

4. Tax Framework: It forms part of a broader tax framework that integrates domestic and international tax regulations to ensure a level playing field.

5. Financial Statements: MNEs must base their top-up tax calculations on financial statements prepared under accepted accounting standards, ensuring accurate reporting and transparency.

6. Tax Incentives: The policy is designed to mitigate harmful tax competition by limiting aggressive tax incentives that reduce effective tax rates below the minimum threshold.

7. Ensures Compliance: By imposing the top-up tax, jurisdictions ensure compliance with the global minimum tax rate, reducing risks of profit shifting and base erosion.

This tax policy reinforces the global effort to create a fair and sustainable tax environment, targeting large MNEs to ensure equitable contributions across all jurisdictions.