At a time when global tax changes are changing the way companies do business internationally, the United Arab Emirates (UAE) has risen to meet such standards. On January 1, 2025, you aren’t far into left field, but MNEs in the region will operate under the regime of Domestic Minimum Top-up Tax (DMTT). If you’re a UAE-based Multinational Enterprises (MNEs) and ask yourself what DMTT is, then this blog should give an overall view covering its mechanics, legislative background and how it plays in the real world for your operations. We explore how the UAE Domestic Minimum Top-up Tax could change your tax planning, from free zone benefits to stickiness of compliance.
Introduction of DMTT
The launch of DMTT is not occurring in a vacuum. It is the UAE’s adherence to the OECD/G20 BEPS 2.0 Pillar Two model, designed to prevent tax base erosion and ensure that major MNEs pay their fair share globally. The DMTT was introduced in a MoF announcement in December 2024 and applicable for financial years beginning on, or after, January 1, 2025. This comes in the wake of a broader introduction of UAE corporate tax in 2023 and public consultation on the issue last year.
At the heart of the domestic minimum, top-up tax legislation is low-taxed income, in which foreign jurisdictions may levy their own top-up taxes on UAE profits. It’s a forward-thinking step. By levying the tax domestically at 15%, the UAE protects its economy while also enhancing transparency and investor confidence. For multinationals with cumulated taxable revenues of over €750 million worldwide in at least two of the past four years, that’s not optional, it’s the new normal.
What Is DMTT?
So, what is DMTT exactly? The UAE Domestic Minimum Top-up Tax (DMTT) is an additional 15% tax imposed on top of the existing corporate income tax regime at a rate of 9%. It is applicable to UAE tax residents, being MNE group members (which includes branches and joint ventures) testing the Effective Tax Rate (ETR) on a minimum of 15% of UAE-based profits.
Here’s how it works in simple terms:
- Threshold: Applies to MNEs with global revenue exceeding €750 million. Profits of UAE entities are consolidated on a jurisdictional basis.
- Calculation: Notional tax of at least 15%, through the top-up tax, if the ETR is less (i.e., covered taxes divided by GloBE income). This applies generally accepted financial accounting standards, such as IFRS (Modifications are made for exclusions, such as for certain equity gains or losses).
- Qualified: The UAE DMTT purports to achieve OECD “qualified” status (that is, it’s creditable against foreign top-up rules such as IIR),
Unlike a standalone tax, DMTT doesn’t replace corporate tax; it’s a safety net. For highly taxed entities that are already and always have been above 15%, there’s no further liability. But for the free zone user, it might mean recalibration of structures to avoid surprises.
Impact of UAE DMTT on Multinational Enterprises
The impact of UAE DMTT will be substantial for large multinational groups in UAE. Key effects include:
Higher Overall Tax Costs
Firms that have taken advantage of low-tax arrangements in the past could still be liable to top-up taxes, eliminating tax arbitrage.
Increased Compliance and Reporting Requirements
UAE-based multinationals are likely to need to generate detailed Pillar Two data, documentation and reconciliations sometimes necessitating enhanced accounting systems and governance frameworks.
Strategic Restructuring
Corporate structures, entity statuses and cross-border profit splits may need to be rethought in the global minimum tax reality.
Improved Tax Certainty
Whilst the regime raises taxes for some, it also helps to level the playing field across the world and mitigate risks of foreign top-up taxes on UAE profits.
UAE DMTT Registration and Compliance Requirements
DMTT applying multinationals are required to register and file UAE DMTT, returns, and retain supporting records. Given that the UAE’s Federal Tax Authority will publish guidance notes we may expect the following as basic requirements:
- Registering on the UAE tax portal
- Annual DMTT return submission
- Effective tax rate calculations
- Pillar Two reporting by each UAE constituent entity
- While keeping the audited financial and tax records
This would subject violators to fines, on the model of the UAE’s Corporate Tax regulations there.
Steps to Get Compliant
The process for registering in the UAE coded DMTT is simple, but fast paced. In-scope entities need to register with the FTA through the Emara Tax portal. Information on forms is pending but anticipated group views and entity details.
Quick Checklist:
- Check Scope: Check €750m sales threshold with consolidated accounts.
- File: FTA by deadlines (to be announced, follow MoF updates). Add TRN if corporate tax is registered already.
- File Returns: 15 months after fiscal year-end (18 months for 2025). Pay top-ups alongside.
- Appoint Filer: For each group or file, appoint the one and only entity.
- Disclose:Pillar Two add-on with financial results update.
If you fail to register, it can lead to audits and penalties, so put this in your 2025 tax calendar.
Why DMTT Matters UAE Multinationals?
The implementation of DMTT brings the UAE in line with international tax changes while changing corporate compliance for major players. Multinationals must now:
- Reassess tax planning strategies
- Ensure timely DMTT registration
- Enhancing systems to accurately calculate ETR and top-up tax
- Time to seek advice on putting the global tax position in better shape (or re-shaping it).
Conclusion
What is DMTT? Ever more simply, it is the UAE’s way of bringing in the global minimum 15% tax rate on big, multinational groups. The new UAE Domestic Minimum Top-up Tax provides a stronger framework of the tax system in the United Arab Emirates, helping guarantee that MNCs earning profits domestically pay taxes at least equal to international norms.
For multinational entities headquartered in the UAE, DMTT introduces new compliance obligations while at the same time limiting exposure to foreign top-up taxation by keeping tax payments within the UAE.
Businesses should start preparing early, so they may fully comply with the UAE DMTT Law and mitigate non-compliance risks.
