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UAE imposes Domestic Minimum Top-up Tax [DMTT] from January 2025
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The United Arab Emirates will impose a minimum top-up tax (DMTT) of 15% on large multinational companies operating in the country from January 2025. This artcle gives a biref about the concept of DMTT.
What is DMTT?
The Domestic Minimum Top-up Tax (DMTT) is a key feature of the OECD’s Pillar Two framework under the Global Anti-Base Erosion (GloBE) rules. It is designed to help countries ensure that multinational enterprises (MNEs) operating within their borders pay a minimum effective tax rate (ETR) of 15%.
How DMTT Works?
The DMTT allows a country to impose additional taxes on MNEs operating domestically if their ETR falls below the 15% threshold after accounting for regular corporate income taxes and other relevant levies. If an MNE’s domestic operations generate profits taxed below the 15% ETR, the country can impose a top-up tax equal to the shortfall. This prevents other countries from collecting these taxes under the Income Inclusion Rule (IIR) or the Undertaxed Payment Rule (UTPR).
Example: Suppose an MNE operates in Country A, where its ETR is only 10%. Under the GloBE rules, the MNE should be taxed at 15%. Country A can apply a DMTT, imposing an additional 5% tax to meet the global minimum. If Country A fails to impose the DMTT, the parent company’s home country may apply the IIR to collect the tax difference.
Why DMTT Matters
1. Revenue Protection: DMTT ensures that tax revenues stay within the country where economic activity occurs.
2. Compliance with Pillar Two: Countries adopting the DMTT can still comply with the global minimum tax rules while preserving their tax base.
3. Reduced Tax Competition: By applying a DMTT, countries can reduce harmful tax competition by limiting incentives for profit shifting.
Global Adoption Status
Several countries, including the UK, EU member states, and others, have incorporated or are considering implementing the DMTT as part of their domestic legislation in line with the OECD’s Pillar Two framework.