The UAE has transitioned from a tax-haven to a low-tax jurisdiction since the introduction of a 9% corporate tax rate in 2023. As the economy got used to these rates, a new proposal to implement a 15% minimum corporate tax rate starting in January 2025 has been suggested by the Ministry of Finance under the Domestic Minimum Top-up Tax (DMTT). This move aligns with the OECD’s Two-Pillar Solution with a goal for a fair and transparent tax system and also helps in generating higher tax revenues for the country to diversify away from oil revenues.
In the short term, a higher tax regime will inevitably impact profitability for businesses that were used to enjoying relatively lower taxes offered by the Gulf state, leading to a negative investor sentiment. However, corporations in the country’s free zones will maintain their tax-exempt status, and despite a 15% tax rate, the UAE would still be an attractive business destination, relative to countries like the UK and Saudi Arabia, which have a 25% and 20% corporate tax rate, respectively. The UAE is trying to bolster business and entrepreneurship with the new act by suggesting the introduction of tax incentives for R&D expenditure, with a potential of 30-50% refundable tax credit, along with tax credits for high-value employment activities.
Initially, after the 9% corporate tax was introduced, it was a major deal as the country saw a rate increase from a tax-free status. Nonetheless, corporations abided and revised their financial strategies in order to comply with the new regulations. This time, an increase in the tax rate is witnessed at a time when the UAE is actively trying to grow its major non-oil economy. However, a well-executed transition could provide stability and sustained government revenue in the long run, aligning with the UAE’s goal for economic diversification.
UAE Proposes 15% Minimum Corporate Tax Rate – Century Financial
