United Arab Emirates

United Arab Emirates (UAE) Federal Corporate Tax (CT)

The UAE CT was introduced in December 2022 and applies to taxpayers’ financial years starting on or after 1 June 2023.

UAE CT is applicable across all Emirates and applies to all business and commercial activities, subject to certain exceptions. Transfer pricing rules and documentation requirements are also introduced as part of the UAE CT regime. The Federal Tax Authority (FTA) is responsible for the administration, collection, and enforcement of CT.

Pillar Two developments in the United Arab Emirates

On 9 December 2024, the UAE Ministry of Finance (MoF) announced updates in relation to UAE CT Law. These include:

Domestic Minimum Top-up Tax (DMTT)

Following the issuance of Federal Decree Law No. 60 of 2023, a DMTT is effective in the United Arab Emirates for financial years starting on or after 1 January 2025. This strategic step reflects the United Arab Emirates’ commitment to implementing the Organisation for Economic Co-operation and Development’s (OECD’s) Two-Pillar Solution, aimed at establishing a fair and transparent tax system aligned with global standards.

The Pillar Two rules require large multinational enterprises (MNEs) to pay a minimum effective tax rate of 15% on profits in every country where they operate. The UAE DMTT will apply to MNEs operating in the United Arab Emirates with consolidated global revenues of 750 million euros (EUR) or more in at least two out of the four financial years immediately preceding the financial year in which the DMTT applies. The United Arab Emirates’ implementation of the DMTT will closely align with the OECD’s Global Anti-Base Erosion (GloBE) Model Rules.

Further, Cabinet Decision No. 142 of 31 December 2024 introduced the detailed legislation on the UAE DMTT, including cases, provisions, conditions, rules, controls, and procedures. It is broadly aligned with the OECD’s Inclusive Framework (IF).

Tax incentives to support growth and innovation

The United Arab Emirates continues to enhance its business-friendly environment, reflecting its commitment to national strategic objectives, such as strengthening economic competitiveness and improving ease of doing business. To promote sustainable growth, innovation, and investment, the MoF is currently considering the introduction of the following corporate tax incentives under UAE CT Law.

To encourage research and development (R&D) activities, foster innovation, and economic growth within the United Arab Emirates, an R&D tax incentive is being considered. Based on feedback received during public consultations conducted in April 2024, the proposed incentive is expected to take effect for tax periods starting on or after 1 January 2026. The R&D tax incentive will be expenditure-based, offering a potential 30% to 50% tax credit, and will be refundable depending on the revenue and number of employees of the business in the United Arab Emirates. The scope of qualifying R&D activities will be aligned to the OECD’s Frascati Manual guidelines and will be required to be conducted within the United Arab Emirates.

Another incentive being considered is a refundable tax credit for high-value employment activities. This aims to encourage businesses to engage in activities that deliver significant economic benefits, stimulate innovation, and enhance the UAE’s global competitiveness. This incentive is proposed to take effect from 1 January 2025 and will be granted as a percentage of eligible salary costs for employees engaged in high-value employment activities. This includes C-suite executives and other senior personnel performing core business functions that add substantial value to the UAE economy.

The final form and implementation of the above-mentioned proposed incentives are subject to legislative approvals.

Sharjah Emirate Law on Taxation of Extractive and Non-Extractive Activities

In February 2025, the Emirate of Sharjah announced its law with 20% Emirate level corporate tax on companies engaged in extractive and non-extractive natural resource activities. The Law is not yet available in the public domain.

Under the law, companies subject to its provisions, if they are liable under applicable federal legislation for any type of direct tax (e.g. UAE CT), are granted a deduction from the Sharjah tax due under this law equal to any direct federal tax that is proven to have been paid to the state by the company.

It is yet to be seen how Free Zone entities, taxed under the Federal CT Law at 0% as Qualifying Free Zone Persons, will be taxed under this Sharjah tax law.

Family foundation 

A UAE-based family foundation structure, with an elected tax-transparent status, generally prevents the income of the foundation or trust from attracting UAE CT and is a useful vehicle for families to ensure a tax efficient holding structure, proper governance, as well as succession planning.

The Ministerial Decision #261 of 2024 extends the option for a tax-transparent status to any underlying legal entity wholly owned and controlled, directly or indirectly, by a family foundation. Whereas a family foundation previously had to hold the assets directly in order for any income they generate to benefit from the structure’s tax-transparent status, this amendment allows family foundations to hold assets via a legal entity, such as a company, without compromising the overall tax efficiency of the structure.