UAE Amends Corporate Tax Law, Introduces Domestic Minimum Top-Up Tax and New Incentives

Key Amendments to Corporate Tax Law

The United Arab Emirates government has issued a Federal Decree-Law, amending specific provisions of the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporation and Businesses, commonly known as the Corporate Tax Law. These amendments aim to enhance clarity and flexibility within the tax framework, particularly concerning the calculation and settlement of corporate tax obligations.

A primary focus of the amendments is to clarify the mechanism for calculating and settling corporate tax when various tax credits or incentives are applied. The revised law outlines a sequential process for utilizing available credits. Tax liability will first be offset by the withholding tax credit balance as per Article 46 of the law. If a balance remains, businesses can then apply the available foreign tax credit under Article 47. Any further reductions will be made using other approved incentive or relief balances as specified by the Cabinet.

Refunds for Unutilized Tax Credits and FTA's Role

A significant new provision allows taxable persons to claim a payment for unutilized tax credits arising from relevant incentives or reliefs. This offers businesses greater flexibility in managing their tax positions and monetizing tax benefits that remain after offsetting liabilities. The specific conditions, timeframes, and procedures for these claims will be detailed in a forthcoming Cabinet decision.

The updated provisions also grant the Federal Tax Authority (FTA) the authority to manage and disburse approved tax credit claims. The FTA may withhold amounts from corporate tax revenues, and where applicable, from top-up tax collections, to fund legitimate refund claims, following a decision by its Board of Directors.

Introduction of Domestic Minimum Top-Up Tax (DMTT)

Further amendments, introduced via Federal Decree-Law No. 60 of 2023, include the implementation of a Domestic Minimum Top-Up Tax (DMTT). This significant change aligns the UAE with the Organisation for Economic Co-operation and Development's (OECD) Pillar Two global minimum tax framework. The DMTT will be effective for financial years starting on or after January 1, 2025.

The DMTT will apply to multinational enterprises (MNEs) operating in the UAE with consolidated global revenues of EUR 750 million or more in at least two of the four financial years immediately preceding the financial year in which the DMTT applies. This ensures that these large MNEs pay a minimum effective tax rate of 15% on profits earned in the UAE.

New Tax Incentives Under Consideration

To foster economic growth, innovation, and investment, the Ministry of Finance is also considering the introduction of new corporate tax incentives:

• A Research and Development (R&D) Tax Incentive, offering a refundable 30-50% tax credit, is proposed to take effect for tax periods starting on or after January 1, 2026.
• A High-Value Employment Incentive, a refundable tax credit calculated as a percentage of eligible salary costs for employees engaged in high-value activities, is proposed to take effect on January 1, 2025.

The original Federal Decree-Law No. 47 of 2022, which established the legislative framework for a federal corporate tax, was published on October 10, 2022, and became effective for financial years beginning on or after June 1, 2023. It introduced a 0% tax rate for taxable income up to AED 375,000 and 9% for income exceeding this threshold.