A key development on the horizon is the Domestic Minimum Top-Up Tax (DMTT), expected to take effect from 2026 as part of the OECD’s Pillar Two global minimum tax framework.

For large multinational enterprises (MNEs) operating in or through the UAE, this represents a significant shift in the corporate tax landscape – and one that requires early planning.

What Is the Domestic Minimum Top-Up Tax (DMTT)?

The Domestic Minimum Top-Up Tax is designed to ensure that large multinational groups pay a minimum effective tax rate (ETR) of 15% on profits generated in the UAE, even where local incentives or reduced tax rates apply.

The DMTT applies in line with OECD Pillar Two rules to multinational groups with consolidated global revenues of EUR 750 million or more.

Key features of the DMTT include:

• A mechanism to “top up” UAE tax paid where the effective tax rate falls below the 15% global minimum.
• Protection against foreign top-up taxes, as the UAE will collect the tax locally.
• Retention of tax revenues within the UAE, rather than ceding them to overseas tax authorities.

In practice, this ensures that profits earned in the UAE are taxed in the UAE – even where preferential regimes are in place.

Who Is in Scope – and Who Is Exempt?

The DMTT is targeted at large multinational groups, not SMEs or purely domestic businesses.

In Scope:

• Groups with global consolidated revenues of EUR 750 million or more in at least two of the previous four fiscal years.
• UAE entities that form part of such multinational groups, whether operating in the mainland or free zones.

Out of Scope / Exempt:

• Businesses below the EUR 750 million threshold.
• Purely domestic UAE groups with no international presence.
• Certain government entities, pension funds and non-profit organisations.

Importantly, free zone companies – even those benefiting from a 0% corporate tax rate on qualifying income — may still be subject to a DMTT if they are part of a large multinational group. In such cases, a top-up tax may apply to bring the effective rate up to the global minimum.

Key Challenges and Opportunities for Multinationals

Challenges

• Compliance complexity: DMTT calculations require detailed, jurisdiction-by-jurisdiction financial data and close coordination across group entities.
• Increased compliance costs: New reporting systems, advisory support and audit processes may be required.
• Margin pressure: Entities benefiting from preferential tax regimes could see an increase in their effective tax rate.

Opportunities

• Enhanced governance and transparency, strengthening credibility with investors, regulators and financial institutions.
• Strategic tax planning, enabling groups to review structures, substance and profit allocation within OECD-compliant frameworks.
• A level playing field, reducing aggressive tax competition and aligning the UAE with other leading global financial centres.

Steps UAE Businesses Should Take Now

With 2026 approaching, early preparation is critical.

1. Assess Scope and Exposure
Confirm whether your group meets the EUR 750 million revenue threshold and identify impacted UAE entities.

2. Evaluate Effective Tax Rate (ETR)
Analyse your current UAE ETR and identify any shortfall against the 15% minimum.

3. Review Group Structures and Intercompany Arrangements
Assess transfer pricing policies, IP ownership, financing arrangements and profit allocation models.

4. Strengthen Data and Reporting Systems
Ensure systems can generate the granular financial data required under Pillar Two and DMTT rules.

5. Engage Professional Advisors Early

Expert guidance is essential to navigate how the DMTT interacts with UAE corporate tax rules – particularly for free zone entities.

The introduction of the Domestic Minimum Top-Up Tax marks a major evolution in the UAE’s tax framework. Multinational groups that prepare early will be best placed to manage compliance, minimise disruption and protect long-term value.

To discuss how the DMTT may affect your group, contact Andy Martin, Partner at Taxwise, for specialist advice tailored to your business and operating structure.

Jenna Jenkins is Managing Director at Luxe Incorporations.
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+971 4 410 7278