As the global tax environment continues to evolve, the UAE has introduced a Domestic Minimum Top-up Tax (DMTT) to ensure large multinational enterprises (MNEs) operating in the Emirates pay an effective tax rate of at least 15%. The measure, which aligns with the OECD’s Pillar Two global minimum tax rules, took effect for financial years starting on or after 1 January 2025, and it has already reshaped the UAE’s tax landscape.
Here is a concise overview of what the DMTT is, whom it affects, and what companies should do next.
Why has the UAE introduced the DMTT?
The DMTT is part of the UAE’s compliance with the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), particularly the Pillar Two requirement for a 15% global minimum tax. In scope are large MNEs—those with annual consolidated revenues of at least USD 828 million (AED 3 billion approximately) in at least two of the four preceding fiscal years—ensuring they do not benefit from an effective tax rate below 15% in the UAE. Introducing a DMTT means that if a company’s effective tax rate in the UAE is less than 15%, it will be “topped up” to the minimum rate by the UAE government, rather than by foreign authorities.
Scope and Key Points
Who is Covered?
- Large MNEs with consolidated revenues of at least USD 828 million (AED 3 billion) in at least two of the four preceding fiscal years.
- Purely local businesses with no overseas presence and smaller companies below the threshold do not fall under the DMTT.
Calculation Basics
- The DMTT applies on a jurisdictional basis, meaning profits and taxes of all in-scope UAE entities are assessed collectively.
- It uses financial accounting income (with certain adjustments) to determine the group’s effective tax rate in the UAE.
- If the effective tax rate is below 15%, the top-up tax bridges the gap.
Corporate Tax Interaction
- The UAE introduced a 9% federal corporate tax on business profits from mid-2023. Large MNEs paying 9% may face a top-up if their overall effective tax rate is below 15%.
- Entities in Free Zones that benefit from 0% corporate tax are not excluded from the DMTT if they meet the MNE criteria. A Free Zone subsidiary of a large MNE could owe a top-up up to 15%.
Implementation Timeline
- Legal Basis: Established through Federal Decree-Law No. 60 of 2023, with further clarifications published in the Cabinet Decision No. (142) of 2024.
- Effective Date: For financial years beginning on or after 1 January 2025. Public consultations shaped many of the final rules, and transitional safe harbours apply in the early years.
Compliance Obligations
- Registration: In-scope UAE entities must register with the Federal Tax Authority (FTA) specifically for DMTT.
- Filing & Payment: The DMTT return is due 15 months after the end of the relevant financial year (or 18 months for the first year).
- Safe Harbours: Certain de minimis tests and simplified calculations can reduce the compliance burden for smaller or lower-risk operations.
How Does the DMTT Affect Business Strategy?
- Restructuring: Businesses may re-evaluate their intra-group transactions, especially if they previously relied on low or zero tax in the UAE for profit allocation.
- Substance & Incentives: Although Free Zone benefits remain in place for companies under the USD 828 million (AED 3 billion) threshold, large MNEs may find the advantage of zero tax eroded. However, the UAE is rolling out R&D tax credits and other incentive schemes that comply with Pillar Two requirements—making sure genuine innovation and value-adding activities are still supported.
- Compliance & Data Readiness: Companies need robust accounting and reporting systems to consolidate financial data and calculate the top-up accurately. For many, this will be a significant change, requiring new expertise, processes, and technology.
Comparisons with Other Countries
Many investment hubs—such as Hong Kong, Singapore, and Bahrain—are enacting similar domestic top-up taxes. The general principle is uniform (15% minimum rate, similar revenue thresholds, etc.), but the details and timelines can vary. By introducing a qualified DMTT, the UAE ensures that additional taxes on UAE profits accrue locally rather than abroad.
Next Steps for Businesses
- Assess Scope: Confirm whether your group meets the USD 828 million (AED 3 billion) revenue threshold and has cross-border operations.
- Model Potential Liabilities: Work with tax advisers to estimate any UAE top-up based on your effective tax rate.
- Consider Safe Harbours & Exclusions: Check whether transitional or permanent safe harbours apply, potentially simplifying compliance in the short term.
- Enhance Reporting Systems: Prepare to collect and report the detailed financial data required for Pillar Two calculations.
- Explore New Incentives: Look into R&D tax credits and other measures introduced by the UAE that can help offset the impact of the global minimum tax.
We Are Here To Help At Virtuzone
The DMTT underscores the UAE’s commitment to meeting global tax standards, while still aiming to attract foreign investment. For large MNEs, it means the effective rate on UAE profits will reach at least 15%—in line with worldwide trends. Companies need to act promptly to ensure readiness, reviewing how the DMTT could influence not just their local tax bill but also their global tax planning strategies.
By striking a balance between meeting international obligations and offering Pillar Two-compliant incentives, the UAE reaffirms its position as a dynamic, adaptable economic hub.
At Virtuzone, our mission is to streamline the company formation process and empower businesses to succeed in the UAE. As the region’s tax landscape evolves, our dedicated team can guide you through every stage of the DMTT regime—from assessing your obligations to maximising available incentives. Whether you are an established multinational or a growing enterprise, we help ensure you remain compliant, competitive, and ready to thrive under the new global minimum tax framework. Contact us today for your tax and accounting needs.
