DOMESTIC MINIMUM TOP UP TAX

THE UAE PERSPECTIVE

- BY NIRAV SHAH, Director, FAME Advisory

The basis of domestic minimum tax, introduced in the UAE from January 1, 2025, is to preserve and collect its own share of tax collection, which is due on income sourced from the country

he UAE signed to the Inclusive Framework proposed by OECD in 2019. As part of the initiative, the UAE introduced multiple legislations such as the introduction of CBCR, making the UBO register mandatory, introducing Economic Substance Regulations, and bringing in changes to its treaties by signing into the Multilateral Instrument, notifying most of its treaties to be covered under the same. Thereafter, with a view to improve the overall business climate and perception of the UAE, the Corporate Tax was introduced from 2024. Now, with a view to not lose its fair share from collection of Global Minimum tax, the UAE introduced the domestic minimum top up tax for eligible multinationals operating in the country.

The primary objective of introducing the domestic minimum tax is to ensure that the UAE collects its rightful share of tax on income generated within the country. Previously, multinational corporations (MNCs) operating in the UAE would often pay taxes on this income in their parent company's jurisdiction. With the new legislation, however, the UAE now levies tax directly on income sourced within its borders by such entities. This has led to the implementation of the domestic minimum top-up tax regime.