By Investing in People and Assets, Companies Under the UAE’s 15% DMTT can Lower Top-up Tax and Convert Compliance into a Competitive Edge.
Unpacking the DMTT Story
- Understanding UAE DMTT framework
- How substance-based exclusion works
- What qualifies as eligible substance
- Governance and compliance essentials
- Rethinking free zone advantages
- Data, systems, and compliance readiness
As a finance or tax leader of a multinational enterprise, you’re no stranger to global tax reforms. From 2025, the United Arab Emirates will implement the Domestic Minimum Top-up Tax (DMTT) under Cabinet Decision No. 142 of 2024. This means that large groups with global revenues above €750 million will need to ensure they are paying at least a 15% effective tax rate (ETR) on profits earned in the UAE.
On the surface, this might sound like just another compliance burden. But there’s an important feature built into the UAE regime — the substance-based income exclusion (SBIE). And this is where you, as finance or tax leader, should pay close attention. Because with the SBIE, the tax law essentially says: if your profits are backed by real economic activity in the UAE — through people and assets — we won’t treat them as “excess profits” that attract top-up tax.
In other words, your ability to minimize DMTT exposure depends directly on how much real substance you have in the UAE.
What DMTT Really Means for You
Here’s the core principle: if your UAE entity’s effective tax rate is below 15%, the difference will be charged as a top-up tax. This applies across the group’s UAE entities if you are in scope.
But unlike a flat tax hike, the UAE framework allows you to reduce this top-up by showing that your profits are supported by genuine operations in the country. This is where the SBIE comes in — it reduces the base on which the 15% top-up is applied.
For you as finance or tax leader, that means the question is not just “what’s our tax rate?” but also “what’s our headcount, payroll, and asset footprint in the UAE?”
Breaking Down the SBIE
The SBIE works like this: before applying the top-up tax, a fixed return is carved out on two components of your business in the UAE
Payroll Carve-Out
A return based on the total eligible payroll costs of your UAE employees. This includes salaries, bonuses, pensions, and benefits.
Asset Carve-Out
A return based on the value of eligible tangible assets in the UAE, such as property, plant, equipment, and leased assets.
In steady state, both carve-outs are set at 5%. But there’s a transitional advantage: in 2025, the carve-outs are higher — 9.6% on payroll and 7.6% on assets — and gradually reduce to 5% by 2032.
What this means for you is clear: the sooner you invest in your UAE workforce and infrastructure, the bigger the immediate tax relief under DMTT.
What Qualifies as Substance?
Now, not everything will count. The UAE rules are quite specific
Eligible Payroll Costs
These must be linked to employees or contractors performing work in the UAE under your control. Full employment costs — salaries, allowances, pensions, benefits — all qualify, provided they’re reflected in the financial accounts.
Eligible Tangible Assets
These must be operational assets located in the UAE — offices, factories, warehouses, machinery, vehicles, right-of-use leased assets, and government concessions tied to tangible investment. Passive investments or assets not used in business operations are excluded.
The key point here is that substance means operational, not passive. Only assets and people actively contributing to your UAE business are counted.
Compliance and Governance – Your Checklist
Claiming the SBIE isn’t automatic; it demands robust governance. As finance or tax leader, you should ensure your teams can
- Track and record all eligible payroll costs and tangible assets clearly in financial accounts.
- Separate operational assets from passive investments.
- Integrate accounting and tax systems to generate DMTT-ready data.
- Put in place internal review processes, since the SBIE is recalculated annually.
Strong compliance is not just about avoiding penalties; it also ensures you maximize every dirham of tax relief the SBIE offers.
Conclusion – Turning Compliance into Advantage
Here’s the bottom line: the UAE’s DMTT changes the tax landscape, but it also rewards those who invest in real business activity.
As finance or tax leader, this means you’re not just managing a new tax; you’re managing a strategic lever. By investing in people and tangible assets in the UAE, you can materially reduce or even eliminate your DMTT exposure, while simultaneously strengthening your group’s presence in one of the world’s fastest-growing hubs.
The message is simple: substance isn’t just compliance, it’s strategy. Those who act early will enjoy both financial and operational advantages under the new regime.
