Understanding the Global Minimum Tax Framework and Its Impact

The Global Minimum Tax and UAE Corporate Tax

The global minimum tax, also known as the OECD Two-Pillar Solution, is a tax framework designed to ensure multinational corporations pay a fair share of tax regardless of where they operate. This article explains how the global minimum tax applies in the UAE and what businesses need to do to comply.

Purpose of the Global Minimum Tax in the UAE

The global minimum tax sets a minimum effective tax rate of 15% for large multinational groups. If a company’s profits are taxed below 15% in a given jurisdiction, it must pay the difference as a top-up tax. The rule applies to groups with consolidated global revenue of at least EUR 750 million, and it exists to stop multinationals from shifting profits into low-tax jurisdictions to avoid tax where they actually generate that income.

Timeline: The Global Minimum Tax in the UAE

Domestic Minimum Top-Up Tax (DMTT) in the UAE

Applicability

The DMTT applies to large multinational groups with consolidated global revenue of at least EUR 750 million, roughly AED 3.15 billion, in at least two of the past four financial years.

Key Features

• Ensures the UAE retains a portion of the tax revenue that might otherwise be collected by other jurisdictions under Pillar Two.
• Applies a 15% rate to profits that would otherwise be taxed below the global minimum threshold.

The OECD Two-Pillar Solution

The OECD’s framework addressing multinational tax avoidance has two parts. Pillar One reallocates a portion of taxing rights to the countries where a company’s customers are located, regardless of physical presence there. Pillar Two introduces the global minimum tax itself, ensuring that even profit shifted to a low-tax jurisdiction is still taxed at a floor of 15%.

Key Rules Under the Global Minimum Tax

Pillar Two operates through three linked rules:

• Income Inclusion Rule (IIR): requires the parent jurisdiction to tax the income of a foreign subsidiary if that income is taxed below 15% in the subsidiary’s jurisdiction.
• Undertaxed Payments Rule (UTPR): lets other jurisdictions impose a top-up tax on payments like interest and royalties between related parties if the recipient is undertaxed.
• Subject to Tax Rule (STTR): denies deductions, or requires an equivalent adjustment, for payments that are exempt or undertaxed in the recipient’s jurisdiction.

The IIR is the primary mechanism, the UTPR acts as a backstop where the IIR doesn’t apply, and the STTR supports both.

What This Means for Businesses in the UAE

• Multinational enterprises: need to evaluate the effective tax rate of every entity in their group. The DMTT lets the UAE keep this revenue itself rather than ceding it to another jurisdiction under Pillar Two.
• Small and medium enterprises: businesses below the EUR 750 million threshold are unaffected and continue paying the standard 9% corporate tax rate.
• Compliance and reporting: groups in scope need systems in place to track and report taxable income across every jurisdiction they operate in.
• Double taxation risk: the interaction between UAE corporate tax and the DMTT can create double taxation exposure for some groups. Tax treaty provisions and domestic reliefs may help mitigate this.
• Cross-border transactions: the rules can affect cross-border tax treatment, including withholding tax on certain payments, worth reviewing existing arrangements.
• Investment decisions: groups weighing UAE investment against other jurisdictions now need to factor in the combined effect of the 9% corporate tax and the DMTT.
• Planning and restructuring: some groups may need to revisit their structure to manage the impact of these rules.

Related Tax Incentives for UAE Businesses

Research and Development Tax Credit

Effective for tax periods starting on or after January 1, 2026, under Cabinet Decision No. 215 of 2025 and Ministerial Decision No. 24 of 2026, eligible businesses can claim a tiered credit against qualifying R&D spend:

• 15% credit on spend up to AED 1 million, with at least 2 dedicated R&D staff.
• 35% credit on spend between AED 1 million and AED 2 million, with at least 6 dedicated R&D staff.
• 50% credit on spend between AED 2 million and the AED 5 million cap, with at least 14 dedicated R&D staff.

The credit isn’t refundable in this first phase, it can only offset corporate tax and DMTT liability already owed, though unused credit can be carried forward.

Refundable Tax Credit for High-Value Employment

Effective January 1, 2025, this credit is calculated as a percentage of eligible salary costs for employees in high-value roles, including C-suite executives and senior personnel performing core functions that add significant economic value in the UAE.

Steps for UAE Businesses to Stay Compliant

1. Assess eligibility: determine whether your group meets the EUR 750 million threshold, and calculate the effective tax rate of each entity within it.
2. Understand the rules: get familiar with the IIR, UTPR, and STTR, and how they interact.
3. Review internal processes: keep accurate, jurisdiction-by-jurisdiction records to support your DMTT position.
4. Register where required: in-scope groups need to handle Top-Up Tax registration through the FTA.
5. Get expert advice: the interaction between the DMTT, corporate tax, and available incentives is genuinely complex, and worth reviewing with a specialist.

Conclusion

The Domestic Minimum Top-Up Tax at 15% is one of the more significant developments in the UAE’s tax framework since the introduction of corporate tax itself. It keeps the UAE aligned with the OECD/G20 global minimum tax standard while preserving its position as a competitive place to do business.

If you need help working through how the DMTT, corporate tax, and the available R&D and employment incentives apply to your business, contact us, our corporate tax advisors can walk you through it.