Other BriefingsUAE’s Domestic Minimum Top-up Tax (DMTT): 2025 Updated Guidance
The UAE’s 2025 updated guidance on the DMTT confirms a fifteen percent minimum effective tax rate for large multinational groups starting from financial years beginning January 1, 2025. The updates clarify scope, calculations, and free zone interactions, requiring in-scope MNEs to reassess structures, test their effective tax rate, and upgrade or realign their compliance frameworks to remain competitive.
Definition of the UAE’s DMTT
The DMTT is the UAE’s local implementation of the OECD/G20 Pillar Two global minimum tax rules. Essentially, it is a “top-up” mechanism that guarantees that in-scope groups pay an effective tax rate of at least 15 percent on their UAE profits. The DMTT does not replace the UAE’s existing corporate tax system. Instead, it adds an additional layer on top of it. UAE corporate tax is calculated as usual, and then the DMTT compares the tax paid on UAE profits with the minimum of 15 percent. If the effective tax rate on those profits is below 15 percent (for example, if an entity benefits from a free zone regime or other tax relief) the DMTT imposes an additional UAE tax to raise the overall effective tax rate to 15 percent.Scope of application
The UAE’s DMTT only applies to large multinational enterprise groups that meet the Pillar Two revenue threshold. In practice, this means groups with consolidated annual revenue of at least US$869 million in at least two of the previous four financial years. The DMTT applies to all UAE entities within such a group that fall within the Pillar Two rules, comprising UAE-resident companies and UAE permanent establishments of foreign companies. This includes entities that currently benefit from a corporate tax rate of 0 or 9 percent or from free zone incentives. Smaller groups and purely domestic UAE groups that do not meet the revenue threshold are outside the DMTT regime. These rules will be effective for financial years beginning on or after January 1, 2025, as confirmed by UAE legislation and Ministry of Finance guidance. Consequently, groups that are subject to the rules should already be testing their effective tax rate positions and preparing their data and reporting systems for the new regime.
How the UAE’s DMTT interacts with the current tax regime
Under the current UAE corporate tax system, many companies benefit from a 0 or 9 percent tax rate, as well as generous free zone incentives. However, with the introduction of the DMTT, in-scope multinational groups will face an effective minimum tax rate of 15 percent on their UAE profits, regardless of these incentives. In practice, UAE corporate tax and any other applicable taxes are first calculated. Then, the DMTT assesses whether the overall effective tax rate on UAE profits reaches 15 percent. If not, an additional top-up tax is charged in the UAE to close the gap. This shift also brings a range of new reporting and compliance requirements, which are discussed in the following sections.How MNEs need to adjust to the UAE’s DMTT framework
A first step in assessing exposure to the new rules is determining whether the multinational group meets the global revenue threshold that brings it into scope. This requires a full inventory of all UAE entities within the group structure, including joint ventures and partially owned companies, as any of these may be affected depending on their classification and activities. Understanding how the group is organized within the UAE is equally important. This involves:- Clarifying which entities operate on the mainland and which are situated in free zones; and
- Assessing how profits and income are currently reported across the structure.
- Enhance internal systems to capture more detailed financial and tax data;
- Ensure that accounting processes are aligned with the new requirements; and
- Maintain clear documentation capable of addressing any inquiries from the tax authority.
Impact on free zone incentives
Free zones are one of the of UAE’ main tools for attracting of regional and international businesses. They typically offer a corporate tax rate of 0 percent on qualifying income, lighter administrative requirements, and simplified customs procedures. These advantages encourage groups to establish holding, trading, and service entities in free zones rather than on the mainland. However, under the new DMTT, these tax advantages are no longer guaranteed for large multinational groups. Even if a free zone entity belongs to an in-scope group and pays little or no corporate tax in the UAE, a top-up tax may still apply to ensure that the overall effective tax rate on UAE profits reaches 15 percent. Consequently, companies must reassess the value of free zone incentives. While tax outcomes may align with those on the mainland, non-tax benefits, such as customs facilitation, sector-focused infrastructure, flexible licensing, and strategic locations, can still make free zones attractive.Key takeaway
Starting in 2025, large multinational corporations operating in the UAE can expect to pay a minimum tax of 15 percent on their UAE profits, regardless of local incentives or free zone benefits. The updated DMTT guidance indicates that the UAE is transitioning to the global Pillar Two environment while continuing to strive to be a competitive regional hub. Early preparation is essential for in-scope companies. Those that quickly assess their status, perform impact calculations, and upgrade their financial and reporting systems will be best positioned to navigate the transition smoothly and avoid operational or compliance disruptions.This article first appeared on Middle East Briefing, our sister platform.
