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UAE Introduces 15% Global Minimum Tax on Large Multinationals: What You Need to Know
Tax rules in the UAE are going to change in a big way. Large multinational businesses with annual global sales of more than €750 million (about AED 3.1 billion) will have to pay a new 15% global minimum tax on their adjusted profits starting January 1, 2025. The UAE is now in line with the Base Erosion and Profit Shifting (BEPS) project of the OECD. BEPS is a global effort to make sure that big businesses pay their fair share of taxes everywhere they do business.
This move isn’t just meant to bring in more tax money. It’s also important for the UAE to keep its reputation for good economic management as a global business hub, even as the rules for foreign taxes change.
The Global Minimum Tax: A Brief Overview
One component of the OECD’s BEPS initiative is the global minimum tax, which aims to curb the practice of multinational firms evading taxes by moving their money to countries with lower tax rates. Adopting this tax scheme shows that the UAE is serious about international cooperation and wants to keep the business environment fair and transparent.
Two important parts of the OECD’s Pillar Two model guidelines will be followed in the implementation of the tax:
- If the home country of a multinational does not impose a minimum tax on the profits of its foreign subsidiaries, the home country can do so under the Income Inclusion Rule (IIR).
- The UTPR permits other countries where the multinational operates to levy a "top-up" tax on the undertaxed profits in the event that the home country does not apply the IIR.
What This Means for Businesses in the UAE
This new tax will only affect big multinational businesses, but those companies will have to rethink their tax plans and make sure they follow the new rules. To do this, you might:
- Making changes to financial reporting
Businesses will have to keep track of and report their income in a way that follows the OECD’s Pillar Two rules.
- Reviewing transfer pricing policies
Multinational companies may need to change how they price goods between their own companies to make sure they aren’t sending gains to places with lower taxes.
- Restructuring operations
Sometimes, businesses may want to consider restructuring their operations to get the best tax deal under the new rules.
For instance, a multinational tech company with a regional office in the UAE might need to look over its licensing deals with other countries’ subsidiaries to ensure that profits are appropriately recognized in each jurisdiction.
Key Takeaways
Minimum annual revenue
The global minimum tax will only apply to businesses with annual revenues of more than €750 million. For small and medium-sized businesses (SMEs) in the UAE, this means it won't affect them.
Tax Rate
Companies that are affected will have to pay a 15% global minimum tax on their adjusted profits, which are calculated according to rules set out by the OECD.
Ensuring compliance is important
Businesses should start making plans right away to make sure they understand the new rules and can meet the requirements for compliance.
Implementation Timeline
The tax will start to be effective for financial years that begin on or after January 1, 2025. Hence, This gives businesses time to prepare.
- Need Help navigating these Changes?
At Hallerbos, we help people in the UAE form companies, plan their taxes, and start businesses. Our team of experts can help your company understand and follow these new tax rules. Please get in touch with us right away to find out more about how we can help your business.