UAE: Announces Cabinet Decision on Introduction of Top-Up tax for Multinational Enterprises

The Finance Ministry has introduced Cabinet Decision No. 142/2024, detailing the new Top-up Tax for Multinational Enterprises, specifically the UAE Domestic Minimum Top-up Tax (UAE DMTT).

This follows a previous announcement made on 9 December 2024.

The UAE DMTT aligns with the GloBE Model Rules from the Organisation for Economic Co-operation and Development (OECD).

It targets entities within Multinational Enterprises (MNEs) operating in the UAE, with annual global revenues of €750 million or more, as reflected in the Consolidated Financial Statements of the Ultimate Parent Entity for at least two of the four financial years preceding the applicable financial year.

The tax offers relief through a Substance-based Income Exclusion, which reduces the net Pillar Two income subject to the UAE DMTT.

This is calculated based on payroll and the carrying value of tangible assets to determine Excess Profit for tax computation.

In line with the GloBE Model Rules, the UAE DMTT includes a de minimis exclusion, allowing an entity’s UAE DMTT to be zero if specific criteria are met.

To enhance the UAE’s appeal as an investment hub, Investment Entities, as defined by these rules, are excluded from the UAE DMTT.

As a transitional measure to foster economic growth, the UAE DMTT will not be applied during the initial phase of an MNE Group’s international activity, provided no ownership interests in UAE entities are held by a parent entity subject to a Qualified Income Inclusion Rule in another jurisdiction.

The UAE DMTT should be interpreted according to the OECD’s Commentary and Administrative Guidance.

Cabinet Decision No. 142/2024 can be accessed on the UAE Legislation’s website: www.uaelegislation.gov.ae/en.

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Fujairah, UAE: 20% Salary Hike Announced for Government Employees

Khaleej Times, 6 February 2025: Fujairah has announced a 20% salary increase for government employees from 1 February 2025.

Furthermore, 72% of UAE nationals expect a salary increase in 2025.

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UAE: AI In Courts

Arab Times, 5 February 2025: AI could soon play a key role in the UAE’s judicial system, with trials already underway to test its effectiveness in case analysis.

A top government official has revealed that AI is being used to assist in cases where outcomes are clear-cut and require no human discretion.

Beyond case rulings, AI is also streamlining legal processes by translating, summarising, and analysing large volumes of documents.

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UAE: Advances with $790M VAT Refunds and Digital Expansion

Arabian Business, 26 January 2025: The UAE has made significant progress in its tax refund initiatives, granting $790 million in VAT refunds to nationals constructing new homes and unveiling VAT waivers for tourists.

The Federal Tax Authority (FTA) has highlighted the success of its digital VAT refund systems, which have been enhanced through ongoing digitalisation efforts.

Since the inception of the VAT-refund service for UAE nationals building new residences, 34,900 applications have been approved, amounting to AED2.9 billion ($790 million).

This marks a notable increase from the previous year’s figures, with a 27.52% rise in approved applications and a 32% increase in refund value.

In 2024 alone, 7,520 applications were approved, totaling AED704.38 million ($192 million).

The growth trajectory is evident when compared to previous years, with applications rising from 270 in 2018 to 8,250 in 2023.

The FTA has also expanded the digital VAT-refund scheme for tourists, with the number of registered retail outlets growing to 17,847 by the end of 2024.

This expansion includes the addition of 1,490 new retailers in 2024, contributing to a total of 3,008 outlets over two years.

The FTA is committed to enhancing the tourist experience by increasing the number of self-service kiosks for tax refunds, which now total 97 across major shopping malls, hotels, and airport terminals.

These kiosks process transactions in under two minutes, reflecting an 18.3% increase from the previous year.

The authority has emphasised its dedication to advancing digital systems in line with global best practices and the UAE’s digital transformation strategy.

The FTA plans to continue launching projects in 2025 to further streamline tax services, reduce bureaucracy, and enhance customer satisfaction.

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UAE: To Impose Penalty for Unpaid Corporate Tax

Arabian Gulf Business Insight, 26 January 2025: The Federal Tax Authority (FTA) has announced that companies failing to pay corporate tax will face a significant penalty, amounting to 14% per annum.

This penalty will be applied to the outstanding tax amount and will be calculated from the day after the payment deadline, accruing monthly on the same date.

To avoid these penalties, tax payments must be completed no later than nine months following the end of the relevant tax period.

Starting 1 January 2025, the UAE will increase the corporate tax rate for multinationals to 15% of profit.

This higher rate will affect companies operating in multiple jurisdictions with consolidated annual revenues of €750 million ($793 million) or more in at least two of the four preceding financial years.

This domestic minimum top-up tax amendment follows the introduction of a 9% corporate tax by the Gulf state a year earlier.

In December 2024, the Finance Ministry has stated that this strategic step reflects the UAE’s commitment to implementing the Organisation for Economic Co-operation and Development’s two-pillar solution, aimed at establishing a fair and transparent tax system aligned with global standards.

In a regional context, Bahrain has announced in September 2024 that it would also implement a Domestic Minimum Top-up Tax (DMTT) starting 1 January 2025 next year for large multinational enterprises (MNEs).

Similarly, Kuwait has declared an upcoming corporate tax rate of 15% for large MNEs, effective from the beginning of 2025.

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UAE: SCA Unveils New Rules for Security and Commodity Tokens

In a significant move towards embracing technological advancements in the financial sector, the UAE Securities & Commodities Authority (SCA) has announced a new regulatory framework for security tokens and commodity token contracts.

The decision, issued by the Chairman of the Authority’s Board of Directors, marks a pivotal step in integrating Distributed Ledger Technology (DLT) into the UAE’s financial markets.

The new regulation acknowledges the transformative potential of Distributed Ledger Technology, which has redefined the issuance, trading, and investment landscape in financial markets.

Security tokens and commodity tokens, as highlighted in the regulation, represent a fusion of traditional securities and commodity contracts with cutting-edge technology, offering investors more flexible and efficient tools.

Security tokens, digital assets created using DLT, represent financial rights or tangible assets.

These include equity tokens, which signify ownership in companies, and bond tokens, representing tradeable debts.

Commodity tokens, on the other hand, are digital assets based on the value of physical commodities like gold and oil, facilitating digital trading while minimising traditional trading costs and risks.

The regulation outlines detailed provisions for the offering, issuance, promotion, and registration of security and commodity token contracts within the UAE.

It emphasises the importance of compliance with existing securities and commodity contract regulations, ensuring a seamless integration of these innovative financial instruments into the current legal framework.

Key aspects of the regulation include the requirement for security and commodity token contracts to be recorded and managed through a distributed ledger.

This ledger must meet stringent technical and organisational standards to ensure integrity and protect against unauthorised modifications.

The regulation also stipulates that these tokens can only be traded and settled through licensed markets or alternative trading systems.

The SCA has placed a strong emphasis on investor protection and market integrity.

Obligors, or entities responsible for issuing these tokens, are required to provide comprehensive information to token owners, including details about the distributed ledger’s operation, associated risks, and disaster recovery measures.

The regulation also holds obligors accountable for any damages resulting from inaccurate or misleading information.

In cases of regulatory violations, the SCA is empowered to impose administrative measures, including suspending offerings and cancelling subscriptions.

The Authority also reserves the right to publish the names of violators, ensuring transparency and accountability in the market.

This regulatory development underscores the UAE’s commitment to fostering innovation in its financial markets while maintaining robust regulatory oversight.

By embracing Distributed Ledger Technology and establishing a clear framework for security and commodity tokens, the UAE is positioning itself as a leader in the adoption of digital financial instruments.

The decision will be published in the Official Gazette and will come into effect 30 days from the date of publication, signaling a new era for the UAE’s financial markets.

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UAE: Family Law Reforms

Khaleej Times, 10 January 2025: The UAE’s newly introduced family law represents a significant modernisation of the legal framework, aimed at enhancing the protection of children and families.

Set to take effect in April 2025, this legislation brings about substantial changes in child custody arrangements, financial rights, and educational guardianship.

One of the most notable amendments is the extension of custody age to 18 for both boys and girls, reflecting a stronger focus on the welfare of children while respecting their growing independence.

Previously, custody was granted to mothers until boys turned 11 and girls turned 13.

Now, children at the age of 15 can choose which parent they wish to live with, provided the court deems their choice to be in their best interests.

In cases involving children with severe medical or psychological conditions, custody will remain with the mother unless the court finds an alternative arrangement more suitable.

The law also expands rights for non-Muslim mothers, allowing them to retain custody of their children from Muslim fathers beyond the age of five, subject to court approval.

This marks a significant departure from the previous law, which automatically transferred custody at this age.

The legislation introduces measures to expedite family-related disputes, with educational guardianship primarily remaining with the mother but now addressable by the Urgent Matters Court for more efficient resolution.

Parents now have one year, instead of six months, to file custody claims, with courts able to grant further extensions for valid reasons.

This adjustment ensures that technicalities do not override the best interests of the child.

Equal travel rights for parents are also established, allowing either parent to travel alone with their child for up to 60 days per year, with extensions possible in special circumstances.

The law broadens the definition of family support to include non-cash assistance, such as benefits or in-kind contributions, allowing families to meet their specific needs more effectively.

Wives can now claim backdated maintenance for up to six months and request increases in mandated amounts, with monthly alimony payments given precedence over most other debts.

Stricter controls have been introduced regarding the handling of children’s identification documents, with severe legal consequences for misuse.

Criminal penalties are established for custodians who violate travel provisions or fail to deliver documents to the rightful guardian, highlighting the UAE’s commitment to safeguarding children and protecting family rights.

This new family law reflects the UAE’s dedication to fostering stronger family bonds and ensuring the best interests of all its members, in line with the country’s progressive vision for a modern society.

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