UAE considering introducing R&D tax incentives to boost R&D activities
The UAE has announced new taxes on large multinational companies in its latest amendments to its corporate tax law. Following the issuance of Federal Decree Law No. 60 of 2023, the national minimum surcharge will come into effect in the UAE from financial years beginning on or after January 1, 2025.
This strategic move reflects the UAE's commitment to implementing the Organization for Economic Co-operation and Development's (OECD) two-pillar solution, which aims to establish a fair and transparent tax system in line with global standards, he said. said. Ministry of Finance.
Multinational companies must pay a tax rate of 15%
Pillar 2 rules require large multinational enterprises (MNEs) to pay a minimum effective tax rate of 15% on profits in every country in which they operate. The domestic minimum surcharge applies to businesses in the UAE with consolidated global revenues of EUR 750 million ($792.59 million) or more in at least two of the four financial years immediately preceding the fiscal year to which the domestic minimum surcharge applies. Applies to multinational companies conducting business. Additional taxes apply.
The introduction of a domestic minimum surcharge by the UAE will be strictly consistent with the OECD's GloBE Model Regulations. The policy comes a year after the UAE began implementing a 9% business tax that exempts many free zones that support the economy.
Notably, Bahrain announced in September that it would introduce a domestic minimum surcharge on large multinational companies from January 1 next year.
Research and development tax incentives
The UAE continues to strengthen its business-friendly environment, reflecting its commitment to national strategic objectives such as strengthening economic competitiveness and improving the ease of doing business. To promote sustainable growth, innovation and investment, the UAE Ministry of Finance is currently considering the introduction of corporate tax incentives under Federal Decree No. 47 of 2022.
The UAE is considering introducing research and development (R&D) tax incentives to encourage research and development activities and foster innovation and economic growth in the country. Based on feedback received by the Ministry during a public consultation conducted in April 2024, the proposed incentives will take effect from tax periods beginning on or after January 1, 2026.
The R&D tax incentives are expenditure-based, with tax credits of between 30% and 50% available, and refunds based on the company's revenue and number of employees in the UAE. The scope of eligible R&D activities complies with the OECD's Frascati Manual guidelines and must be conducted within the UAE.
Read: Saudi Arabia's real GDP grows by 2.8% in Q3 2024 due to strengthening of non-oil activities
Refundable tax credit
Another incentive the UAE is considering is refundable tax credits for high-value employment activities. The incentives aim to encourage businesses to engage in activities that deliver significant economic benefits, stimulate innovation and strengthen the UAE's global competitiveness.
The incentive is proposed to take effect from January 1, 2025, and will be granted as a percentage of eligible payroll costs to employees engaged in high-value employment activities. This includes executives and other senior personnel who perform core business functions that add significant value to the UAE economy. The final form and implementation of the proposed incentives described above will require legislative approval.
