The United Arab Emirates (UAE), known for its conducive business climate, is set to introduce a 15% corporate tax on large multinational companies (MNCs). This initiative reflects the UAE’s commitment to adhering to international economic standards and fostering transparency in tax practices.

Alignment with Global Tax Reforms

The UAE’s decision aligns with global tax reform efforts led by the Organization for Economic Co-operation and Development (OECD). Through the OECD’s Pillar Two framework, aimed at curbing tax avoidance, a minimum global corporate tax rate is established for companies with revenues over €750 million. By adopting this tax, the UAE reaffirms its role as a cooperative partner in global tax governance, maintaining its competitive stature in the international business arena.

Targeted Impact

The 15% tax will specifically target:

• Multinational corporations in the UAE with global revenues surpassing €750 million (approximately AED 3.15 billion).
• Entities meeting the OECD’s threshold for global minimum taxation.

This policy predominantly affects large corporations, leaving small to medium enterprises (SMEs) and local businesses largely untouched by these changes.

Business Implications

• Compliance and Reporting: MNCs will need to align their financial reporting with these new standards, ensuring compliance with UAE’s tax regulations.
• Operational Costs: There will likely be an uptick in operational expenses for large companies due to the new tax liabilities and compliance requirements.
• Maintaining Global Competitiveness: The UAE continues to be an attractive destination for businesses, buoyed by its robust infrastructure, strategic geographical position, and an extensive treaty network to prevent double taxation.

Strategic Advantages for the UAE

The adoption of this tax signifies a strategic pivot from the UAE’s low-tax heritage, showcasing its adaptability to international fiscal norms. This move bolsters the UAE’s image as a transparent and forward-looking jurisdiction in the global economic landscape.

Preparation for Transition

MNCs operating within or considering the UAE should undertake a thorough analysis of the tax’s impact on their financial planning. Engaging with expert tax consultants and legal advisors will be instrumental in navigating this new regulatory landscape and optimizing tax strategies.

Conclusion

The introduction of a 15% corporate tax for large MNCs in the UAE is a testament to its commitment to global tax reforms while retaining its status as a prime business destination. This development should be leveraged by companies as an opportunity to refine their compliance mechanisms and align with international best practices, ensuring continued growth and operational efficiency in the UAE.

Authors: Rana El Nahal, Partner and Head Corporate and M&A and Khaled Abu Orabi, Senior Associate.