The UAE has operated as a global business magnet by providing zero or minimum corporate tax conditions which draw multinational corporations from all over the world. But change is on the horizon. The Global Minimum Tax (GMT) has emerged as a transformative global tax rule which the UAE joins through its alignment with international developments.
The UAE business landscape faces significant changes because of this new system. Will it impact Free Zones? Should investors be worried? Additionally which specific actions should business organizations start to take now?
A step-by-step explanation combined with practical examples will assist you to better understand the major tax reform.
What Is the Global Minimum Tax (GMT)?
Let’s start with the basics.
An international tax rule, viz. Global Minimum Tax (GMT) requires multinational corporations to pay corporate taxes at minimum of 15% regardless of their operational base.
Who created it? The GMT initiative comes from the Organisation for Economic Co-operation and Development (OECD) with support from more than 140 nations that extend to the UAE too.
Why was it introduced?
- To stop companies from shifting profits to tax havens with little or no tax.
- To ensure fair taxation worldwide and prevent unfair competitive advantages.
Imagine a tech giant earning $1 billion in global revenue but shifting all its profits to a low-tax jurisdiction like the Cayman Islands, where it pays 0% tax.
Under the new GMT rules, if the company is headquartered in a country enforcing the 15% tax, it will have to pay the difference—no more escaping taxes!
Why Is the UAE Implementing the Global Minimum Tax?
The UAE has traditionally been a tax-friendly jurisdiction, offering 0% corporate tax in Free Zones and recently introducing a 9% corporate tax on certain businesses.
So why the shift towards the Global Minimum Tax (GMT)?
To comply with international tax standards
- The UAE wants not to become a tax haven.
- Aligning with the OECD’s tax framework strengthens its global reputation.
To maintain investor confidence
- Businesses prefer investing in stable, transparent economies that follow international rules.
- The UAE’s commitment to tax reform reassures global investors.
To keep attracting multinational corporations
- While taxes are rising, the UAE remains business-friendly, offering world-class infrastructure and strategic geographic advantages.
Before 2023, the UAE had no corporate tax (except for oil companies and foreign banks). With the introduction of the 9% corporate tax and now GMT, the UAE is evolving into a more structured taxation system while still maintaining its competitive edge.
Who Will Be Affected by the Global Minimum Tax in the UAE?
Let’s break it down.
Businesses That WILL Be Impacted
- Large multinational corporations (MNCs) with global revenues exceeding €750 million (AED 3.2 billion).
- Companies that previously shifted profits to UAE Free Zones to benefit from 0% tax.
- Multinationals in industries such as tech, finance, e-commerce, and consulting.
Businesses That WON’T Be Impacted
- Local UAE businesses that don’t meet the revenue threshold.
- Small and medium enterprises (SMEs) operating below the €750 million threshold.
- Freelancers and individual entrepreneurs—no income tax in the UAE.
Example:
A large multinational with a regional HQ in Dubai’s Free Zone paying 0% corporate tax will now be required to pay at least 15% on its global earnings.
How Will the Global Minimum Tax Work in the UAE?
Here’s how it functions:
If a company pays less than 15% in a country, its home country (or another jurisdiction) can collect the difference to meet the 15% rate.
The UAE’s new corporate tax (9%) isn’t enough to meet GMT rules—so affected businesses will need to pay an additional tax elsewhere.
Free Zone companies that were previously tax-free may now have to comply.
Key Takeaway: If your company is part of a multinational group and pays below 15% tax, you’ll need to adjust your financial strategy.
Free Zones vs. Mainland: What Changes?
A major question for businesses—Will UAE Free Zones still be attractive?
Free Zones (Previously Tax-Free)
Old Model:
- Many MNCs set up offices in Dubai International Financial Centre (DIFC), Jebel Ali Free Zone (JAFZA), and Abu Dhabi Global Market (ADGM) to enjoy 0% tax.
Now With GMT:
- If your company’s parent entity falls under the €750 million rule, you will have to pay the difference up to 15%.
- Smaller Free Zone businesses may still benefit from tax incentives.
Mainland UAE (Already Taxed at 9%)
Less Impact:
- Since mainland businesses already pay 9% corporate tax, they only need to cover the difference if they fall under the GMT criteria.
Key Takeaway: While Free Zones may lose some of their tax appeal, they still offer advantages like 100% foreign ownership and regulatory benefits.
Potential Impact on the UAE Economy
Let’s break this down into positives and challenges.
Positive Impacts
- UAE strengthens its reputation as a global financial hub with transparent tax policies.
- Encourages businesses to focus on real economic activities instead of tax loopholes.
- Attracts responsible investors looking for stability and credibility.
Challenges to Consider
- Some companies may reconsider Free Zone operations.
- Multinational companies might shift investments elsewhere if not managed properly.
- UAE may need to introduce new incentives to remain attractive.
How Can UAE Businesses Prepare?
Smart strategies for UAE companies:
- Consult Tax Advisors – A solid tax strategy can help businesses optimize compliance.
- Restructure Financial Operations – Align operations with UAE’s 9% tax to minimize top-up tax obligations.
- Leverage Other Benefits – Focus on UAE’s strategic location, talent pool, and infrastructure rather than just tax benefits.
- Stay Informed – The UAE government may introduce new incentives to maintain its attractiveness.
What about Expats, Entrepreneurs & Investors?
- Expats & Professionals: No worries—there’s still NO personal income tax!
- Startups & SMEs: If your revenue is under €750 million, you remain unaffected.
- Foreign Investors: Might need new tax planning strategies but can still enjoy the UAE’s business advantages.
Key Takeaway: The UAE remains one of the most entrepreneur-friendly places in the world.
Is the UAE Still a Tax Haven?
- The UAE isn’t losing its business-friendly edge—it’s evolving.
- Taxes are still low compared to the global average.
- Free Zones may offer new incentives to stay competitive.
The UAE is adapting to global trends while maintaining its reputation as a top business destination.
What’s Next for Businesses in the UAE?
The Global Minimum Tax revolutionizes the business landscape yet the UAE retains its investment appeal to investors.
Companies need to understand and reform their financial structures to prepare for upcoming tax changes.
To retain its global attractiveness the UAE government might implement fresh tax incentive programs.
Stay informed by consulting tax specialists, and align your strategy according to UAE’s economic trends to sustain business success in this ever-changing landscape.
