As the UAE continues to align itself with evolving global tax standards, the introduction of the Domestic Minimum Top-Up Tax (DMTT) is set to change the landscape for multinational enterprises (MNEs) operating within its borders. This change was made in response to the OECD’s Pillar Two proposal and to comply with the “GloBe” rules of the OECD. While the UAE has long been considered a tax-efficient jurisdiction, this new tax regime brings a significant shift that business leaders cannot afford to ignore.
In this blog, we explore the impact of the Domestic Minimum Top-Up Tax on MNEs in the UAE from a strategic and financial perspective. We’ll also share actionable insights to help you prepare your business and remain competitive.
What is the domestic minimum top-up tax (DMTT)?
The DMTT is part of the UAE’s efforts to implement a local mechanism that ensures large multinational groups pay a minimum level of tax, even if their base jurisdiction — such as the UAE — has low or no corporate tax rates.
In simple terms, if an MNE’s effective tax rate in the UAE falls below a certain minimum threshold (15% for groups with consolidated revenues above €750 million), the DMTT ensures that the UAE itself collects the top-up tax, instead of another country where the MNE operates. This is aimed at preventing profit shifting and base erosion — while retaining taxing rights within the UAE.
Who does the domestic minimum top-up tax apply to?
The DMTT will apply primarily to large multinational enterprises operating in or through the UAE — especially those who benefit from tax incentives in free zones or structure operations to minimize tax liabilities.
If your business is part of a group that earns more than €750 million in consolidated revenue.
Strategic and financial impact on MNEs
1. Pressure on free zone incentives
Many companies have historically structured their UAE operations to benefit from free zone tax holidays. Under the DMTT, these incentives could be neutralized, as the “top-up” may need to be paid regardless of local tax exemptions. This calls into question the long-term value of certain incentives and raises the need to reevaluate corporate location strategy.
2. Changes to intragroup transactions
The DMTT will lead to increased scrutiny of intragroup pricing models. Businesses that shift profits into low-tax jurisdictions like the UAE could see those profits subjected to a top-up tax — effectively erasing the benefit. This may force a realignment of transfer pricing policies and intercompany arrangements.
3. Effective tax rate adjustments
Even if your UAE entity is currently paying little to no corporate tax, the DMTT may change your global effective tax rate (ETR). Companies may face a sudden increase in tax costs, impacting cash flow projections, dividend strategies, and reinvestment plans.
4. Reputational and investor impact
Publicly listed or investor-backed MNEs may be required to disclose higher tax expenditures due to DMTT-related adjustments. This can affect investor perception, creditworthiness, and overall financial transparency.
Scenario: A UAE-based MNE facing the domestic minimum top-up tax
Let’s consider xyz, a UAE-headquartered tech conglomerate that operates in the Middle East, Africa, and Asia. The group earns €1.2 billion annually, and its UAE entity benefits from a free zone tax exemption.
Under the current structure, the UAE entity pays 0% corporate tax, while other subsidiaries pay between 15% and 25% tax. With the introduction of DMTT:
- The UAE entity’s income will now be tested against the 15% minimum tax rule.
- If it falls short, the UAE will collect the top-up tax, e.g., 15% of the profits earned locally.
- GlobalTech’s global effective tax rate will increase, and it may need to restructure or shift operations to optimize its tax exposure.
This illustrates that even if no new tax is due locally, financial and structural implications are inevitable.
How should businesses in Dubai respond?
The DMTT introduces a layer of tax complexity that requires strategic planning. Business owners and CFOs should start considering
- Rethinking group structure
Review how your holding and operating companies are structured. Do you need to centralize certain functions elsewhere? Are there opportunities to create substance in other jurisdictions?
- Reevaluating profit allocation models
Review how profits are split among group entities. Ensure intragroup transactions are appropriately documented, valued, and aligned with economic activity.
- Forecasting the tax impact
Engage in tax modeling to understand how the DMTT will affect your bottom line, especially across different business scenarios and jurisdictions.
- Reviewing free zone strategies
Some free zone incentives may now be less effective from a global tax perspective. You may need to reassess the long-term value of operating in tax-free environments.
Why you need a tax consultant more than ever
The introduction of the DMTT signals the end of “easy tax planning” in the UAE. Businesses that do not take timely action risk facing unanticipated tax liabilities and inefficient structures.
A professional tax consultant can help you:
- Conduct impact assessments specific to your group structure
- Identify tax optimization strategies within the new rules
- Ensure alignment with UAE regulatory expectations
- Avoid reputational risk and costly mistakes
At MBB Auditing, we specialize in tax strategy advisory for businesses across the UAE. Our tailored approach ensures that your company remains agile, compliant, and financially optimized under the evolving tax landscape.
Conclusion
The impact of the Domestic Minimum Top-Up Tax on MNEs in the UAE is more than just a compliance issue – it’s a call for strategic reassessment. Businesses must prepare for a new tax environment where structure, transparency, and proactive planning will define success.
If your business is part of a multinational group and you’re unsure how the DMTT will affect you, now is the time to act.
