The UAE minimum tax and transfer pricing: what applies to whom

The UAE's headline corporate tax rate is 9%, and qualifying free zone income can be taxed at 0%. Under the OECD's global minimum tax, large multinational groups are expected to pay at least 15% in every jurisdiction where they operate. If the UAE did nothing, the difference between the UAE rate and 15% would be collected by other countries, typically the parent's home jurisdiction. The UAE's answer is a Domestic Minimum Top-up Tax (DMTT), introduced by Cabinet Decision No. 142 of 2024 under the Corporate Tax Law and applying to financial years starting on or after 1 January 2025.

The policy logic is straightforward: if a top-up is going to be paid somewhere, the UAE would rather collect it itself. For in-scope groups the practical effect is that the 9% rate and the 0% free zone rate no longer set their effective tax burden in the UAE; 15% does. For everyone else, which is the large majority of businesses in the UAE, nothing changes.

The DMTT follows the OECD GloBE Model Rules. The group computes the UAE jurisdictional effective tax rate: covered taxes paid by all its UAE constituent entities divided by their combined GloBE income, which starts from the financial accounting profit used for consolidation and is adjusted under the GloBE rules. If that rate is below 15%, the top-up percentage is the difference, applied to excess profit, which is GloBE income after a substance-based income exclusion calculated from payroll and tangible assets in the UAE.

Two features matter in practice. Because the calculation is jurisdictional, a low-taxed free zone entity and a fully taxed mainland entity in the same group are blended. And because of the substance-based exclusion, a group with real people and assets in the UAE pays less top-up than one with the same profit and no substance. The DMTT is designed to be a qualified domestic top-up tax, so that other countries give way to it and the top-up is collected in the UAE.

The figures are illustrative; the real computation involves many adjustments, transitional reliefs and safe harbours.

Transfer pricing applies far beyond the DMTT's large groups. Under the Corporate Tax Law, transactions between related parties must be at arm's length, using the OECD methods, and payments to connected persons, such as owners, directors and their relatives, are deductible only to the extent they reflect market value for services actually provided. That second rule catches many owner-managed businesses: a salary or fee paid to the owner above market value is not deductible.

Documentation depends on size. Under Ministerial Decision No. 97 of 2023, a Master File and Local File are required where the company's own revenue is AED 200 million or more, or it belongs to a group with consolidated revenue of AED 3.15 billion or more; they must be produced to the FTA within 30 days of a request. A transfer pricing disclosure form is filed with the corporate tax return where related-party and connected-person transactions exceed the thresholds the FTA sets. Free zone companies claiming QFZP status must comply with transfer pricing rules as one of the conditions, so for them documentation is not optional in practice.

For a group near or above EUR 750 million, the first task is to confirm scope and map every UAE entity, including dormant ones and free zone entities, then run a shadow GloBE computation for 2025 to see whether a top-up arises and whether a transitional safe harbour applies. For groups below the threshold, the priority is transfer pricing: a related-party register, intercompany agreements that describe the services actually provided, a benchmarking approach for the main flows, and a clear policy on owner and director remuneration.

In both cases, consistency is the defence. The corporate tax return, the audited accounts, the transfer pricing disclosure, the Local File where required and, for large groups, the GloBE computation should all describe the same business. Where they diverge, the FTA's questions start.