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Tax in UAE: What the 2025 reforms mean for businesses and investors

AUTHOR shreya
Date 28.04.2025

Zero tax? Think again.

For decades, the UAE has attracted investors and entrepreneurs with its tax-free reputation. But times are changing—and so are the rules. As the world shifts toward transparent global standards, the tax in the UAE is entering a bold new phase.

Starting January 1, 2025, the UAE will enforce major tax reforms aimed at aligning with global expectations while continuing to fuel growth and innovation. These reforms mark a turning point in how businesses—local and international—approach their operations in the Emirates.

If you thought the UAE was just about luxury, lifestyle, and low tax—you’re only seeing half the picture. In this guide, we break down what the new UAE tax system looks like, what’s changing, and how companies and investors should prepare.

Understanding the domestic minimum top-up tax (DMTT)

One of the most significant reforms is the implementation of a 15% domestic minimum top-up tax. This move is part of the OECD’s Pillar Two framework and targets large multinational enterprises.

Who is affected?

Companies with global revenues of €750 million or more in at least two of the previous four years will be subject to this tax—ensuring that they pay a fair share regardless of where profits are booked.

This change will significantly impact global firms based in the UAE, especially those used to little or no corporate tax UAE liability.

Clarity for investment funds and real estate trusts

With Cabinet decision no 35 of 2025 and earlier decision no 34 of 2025, the UAE has established more detailed regulations regarding qualifying investment funds (QIFs) and real estate investment trusts (REITs).

Key requirements:

Real estate should make up no more than 10% of a QIF’s asset base.
Funds must have a diversified investor base.
REITs are expected to distribute at least 80% of net income annually.Funds not meeting these criteria could lose their exempt status. However, in the case of certain breaches, only the non-compliant investor may lose the benefit—not the entire fund. This nuanced approach is both fair and strategic.

Grace period for ownership compliance

The UAE’s new tax regime understands the practical challenges of fund management. If a fund unintentionally breaches the ownership concentration rules, it has up to 90 days to resolve the issue.

This flexibility is especially beneficial for fund managers and private equity groups who often deal with dynamic investor bases.

Tax transparency for partnerships

Another important change is the tax treatment of qualifying limited partnerships (QLPs). These partnerships can now opt for tax-transparent status, which means the income is taxed at the partner level—offering clarity for international partners and ensuring compliance with home-country reporting rules.

This provision is aligned with what many investors expect in sophisticated financial jurisdictions, making it easier for foreign partners to operate legally and efficiently in the UAE.

What foreign investors need to know

For many, understanding the scope of income tax in the UAE for foreigners is crucial. Under the new law, foreign juridical investors in funds or REITs must register for tax only when receiving a dividend—if the fund distributes 80% or more of its income within nine months of the fiscal year-end.

This approach simplifies compliance and avoids unnecessary tax registration for passive investors. It’s also a major benefit for those looking to enjoy the advantages of tax in Dubai for foreigners, especially in the real estate or fund management sectors.

Incentives that encourage innovation and talent

The UAE isn’t just introducing tax obligations—it’s also offering meaningful incentives.

Two key programs include:
Refundable tax credits (from 2025):
Companies hiring C-level talent or specialists in innovation, AI, and other key industries may be eligible for salary-based tax credits.
R&D tax incentives (from 2026):
Businesses investing in innovation will qualify for credits ranging from 30% to 50% of their R&D spend. This positions the UAE as a serious competitor in global innovation, not just taxation.

These incentives reflect the government’s long-term vision to become a hub for both business and ideas.

Taxation in the UAE vs. World

The tax in UAE is evolving alongside jurisdictions like Ireland, Singapore, and Saudi Arabia—each introducing reforms to ensure fair corporate taxation and reduce base erosion.

Where the UAE differs is in its balance. It still offers zero income tax for individuals, highly attractive tax rates for small and medium-sized businesses, and competitive advantages in free zones. These policies aim to combine global credibility with local flexibility.

What should businesses do now?

With these reforms taking effect in early 2025, the time to act is now. Companies should:
Determine whether they fall under the scope of the 15% top-up tax.
Review fund structures to ensure compliance with Cabinet decision no 35 of 2025.
Evaluate their partnership status and consider tax-transparency elections.
Prepare for enhanced reporting and possible registration if you're a foreign investor in Dubai.
Identify opportunities to benefit from employment and R&D tax incentives.

Consulting with a tax advisor is essential to avoid surprises—and to fully take advantage of the UAE’s new landscape.

Conclusion

What got you here won’t get you there. The UAE’s 2025 tax reforms aren’t just a policy change—they’re a reflection of a maturing economy ready to lead on the global stage. From the introduction of a minimum corporate tax to generous incentives for innovation and employment, the UAE is building a smarter, fairer tax system without sacrificing its investor appeal.

For businesses, these changes represent both a challenge and a chance. Those who act early and strategically will not only stay compliant—they’ll stay ahead.

So if you’re serious about doing business in the Emirates, it’s time to rethink your strategy and prepare for a future where global standards meet local opportunity.

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Chris Elliott

CEO and Real Estate Expert

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Tax in UAE: What the 2025 reforms mean for businesses and investors