UAE Introduces Top-up Tax for Multinational Enterprises

A new update has been issued by the UAE Cabinet: Cabinet Decision No. 142 of 2024. The law was officially signed on 31 December 2024, and its implications were activated on January 1, 2025. This new regulation is called the Top-up Tax, basically, a tax for MNEs (Multinational Enterprises).

Before the law was introduced, companies in the UAE operating cross borders enjoyed a very low tax rate, but now, they must structure their plans according to this new law. If they do not do so, it will ultimately lead to a profit shrink and failure of tax planning. Also, the new law is quite hard and fast, thus corresponding to a high penalty in case of negligence. It would be a wise choice for businesses to track the updates carefully on preference and adjust their financial goals accordingly.

This can be done with the help of tax agents in the UAE. Jitendra Chartered Accountants (JCA) keeps track of all tax updates and helps businesses prepare accordingly to avoid tax troubles and operate smoothly.

The Highlights of the New Law

Cabinet Decision No. 142 of 2024:

• It requires multinational companies to pay a 15% tax on their global profits exceeding the threshold (approx. 3 billion AED in any 2 out of last 4 tax periods) known as the Top-up Tax.
• This tax is applied in line with the rules listed in an annexure to the decision.
• Includes all the conditions, procedures, and control measures that companies must follow.

This law was introduced to ensure that large multinational companies pay a fair minimum sum of tax on the profits they earn inside and outside the UAE. Get clearer insights on this from tax agents in Dubai.

Which Group Will be Affected the Most?

The new law mainly targets only big companies (MNEs) that operate in more than one country and are large. The large international groups often have income in countries where the tax rate is very low, resulting in less justice in tax payment by these companies. To stop this practice, a Top-up Tax has been designed. If any Multinational enterprise profits are taxed at a rate lower than the global minimum effective tax rate, then this top-up tax will be added to bring the tax level up to the minimum 15% level.

Wondering if you fall under this category? Ask tax agents in the UAE for accurate answers.

Purpose of Introducing Top-up Tax

The purpose of introducing the new law is to eradicate tax avoidance by multinational groups. In this way, the UAE has joined many other countries in supporting fair tax rules. As per the old tax practices, some companies managed to pay very low or no tax in the UAE while still making large global profits. This was unfair to local businesses and the government trying to collect taxes.

By following global tax rules and introducing the Top-up Tax:

• The UAE is setting the even ground for all.
• Showing the UAE’s commitment to worldwide standards of tax fairness.

Core Aspects of the Decision

• Here are the main points of decision that you should know:
• Local businesses do not fall under top-up tax; it is only relevant to multinational enterprises.
• Tax will be imposed from the annual/taxable year that begins on 1 January 2025 or after it.
• Enterprises must follow detailed rules and procedures provided in the update.

Tax will be calculated based on the gap between the company’s current effective tax rate in the UAE and the 15% global minimum.

•  Law gives legal force to Top-up Tax and makes it part of the UAE’s corporate tax system.

How Companies Should Change Their Strategies?

If the company falls within the scope of Pillar Two of the Organisation for Economic Co-operation and Development (OECD)’s Global Minimum Tax rules, it must start preparing for Top-up Tax.

They must:

• Check and review their tax structure to identify low-taxed income
• Collect financial data for the fiscal year starting from January 2025.
• Seek help from tax agents in Dubai to adjust tax planning goals.
• Obey the rules about documentation and reporting under the new law (ensure accurate information is provided to FTA, provide voluntary disclosures to avoid penalties, and maintain proper records).

If your company follows the above steps, you can save it from legal troubles or high taxes.

Come to Jitendra Chartered Accountants (JCA) for Further Assistance!

Top-up tax is somewhat challenging for Multinational Enterprises, but shows fairness with local businesses. Now, they must understand the law, review their business policies, and take measures to save themselves from heavy penalties. All this can be done seamlessly with the help of our expert tax agents at JCA. We help businesses comprehend the tax updates better, help them improve their policies, and assist in avoiding fines and sanctions.