Introduction

Welcome to the November 2025 edition of the MNV Associates Tax Newsletter.

In this issue, we present a focused overview of the latest developments in UAE taxation, spanning both Corporate Tax and VAT. From new FTA clarifications to regulatory updates and compliance enhancements, this edition aims to provide businesses with clear, practical insight into the most important changes shaping the current tax landscape.

Corporate Tax

UAE Introduces Domestic Minimum Top-Up Tax under OECD Pillar Two Framework

On 19 November 2025, the UAE Ministry of Finance published a consolidated summary of updated guidance on the Domestic Minimum Top-up Tax (DMTT), further clarifying how the regime will operate in practice for multinational enterprises (MNEs) subject to the OECD Pillar Two global minimum tax framework. This measure reinforces the UAE’s commitment to international tax standards while preserving the integrity of its existing corporate tax framework.

The DMTT applies to financial years commencing on or after 1 January 2025 and targets multinational enterprise (MNE) groups with consolidated global revenues of at least EUR 750 million in at least two of the four preceding financial years. Under the regime, in-scope UAE constituent entities will be subject to a minimum effective tax rate of 15%, with a top-up tax imposed where the UAE effective tax rate falls below this threshold.

Importantly, the DMTT is intended to operate in parallel with the UAE Corporate Tax regime, rather than as a replacement. While most UAE taxpayers will continue to be subject only to standard corporate tax rules, MNE groups within scope of Pillar Two may incur an additional domestic top-up tax to address any effective tax rate shortfall. The UAE DMTT rules are closely aligned with the OECD Global Anti-Base Erosion (GloBE) Model Rules, supporting consistency and coordination in the international application of Pillar Two.

The regime incorporates key Pillar Two relief mechanisms, including a Substance-based Income Exclusion (SBIE). This exclusion reduces the amount of income subject to top-up tax by reference to a formula based on eligible payroll costs and the carrying value of tangible assets located in the UAE, thereby recognising substantive economic activity. In addition, the DMTT provides for a de minimis exclusion, under which the top-up tax for a UAE entity may be reduced to nil where the relevant revenue and profit thresholds are met, in line with the GloBE framework.

Consistent with the UAE’s broader policy objectives, the DMTT framework excludes Investment Entities, as defined under the Pillar Two rules. The legislation also includes a transitional measure whereby no UAE DMTT will apply during the initial phase of an MNE group’s international activity, provided that none of the ownership interests in the UAE entities are held by a parent entity subject to a Qualified Income Inclusion Rule (IIR) in another jurisdiction.

To ensure international acceptance, the UAE DMTT must obtain “Qualified” status under the OECD Inclusive Framework. This involves a peer review process that begins with a transitional qualification mechanism, based on a self-certification process, enabling expedited recognition prior to a full legislative review. Transitional qualified status is expected to be confirmed within 12 months of the effective date of the legislation, subject to timely submission of the self-certification, and is expected to apply from the effective date once confirmed.

A full legislative review is expected to commence no later than two years after the effective date of the DMTT. Upon completion of that review, the transitional qualified status will cease. The purpose of this process is to promote consistency, prevent double taxation, and ensure coordinated implementation of the Pillar Two rules across jurisdictions. Given the close alignment of the UAE DMTT with the GloBE Model Rules, the UAE is expected to achieve and maintain qualified status within the anticipated timeframe.

Indirect Tax

UAE VAT & Tax Procedures Law Amendments

The Federal Tax Authority has issued an updated Federal Decree-Law No. 16 of 2025, amending the UAE VAT Law (Federal Decree-Law No. 8 of 2017), and the Federal Decree-Law No. 17 of 2025, amending the Tax Procedures Law (Federal Decree-Law No. 28 of 2022).

These changes will significantly impact compliance and administrative processes for businesses.

Amendments to the Federal Decree-Law No. 8 of 2017

Reverse Charge Mechanism: Taxable persons applying reverse charge no longer need to self-issue invoices — though they must retain the relevant supporting documents of supply transactions.

Reclaiming excess refundable VAT: Taxpayers will have a maximum of five (5) years from the end of the relevant tax period to request refunds or apply credit balances after reconciliation.

Recoverable Input Tax & Tax Evasion: Input tax may be denied if linked to tax evasion and due diligence was lacking.

Amendments to Tax Procedures Law

Limitation period: Both FTA and taxpayers will be bound by a five-year window from the end of the relevant tax period for refunds, credits, or for re-assessing past tax positions.

Voluntary Disclosure: The amendments introduce a more structured framework for voluntary disclosures and corrections. Now only certain cases (as specified by the FTA) will require special disclosure.

Refund claims must be submitted within 5 years of the relevant tax period. There are special timelines as an exception to the five-year rule.
– If a credit balance arises from an FTA decision after the five-year period or in the last 90 days of that period, the taxpayer has one (1) year from the date the balance arose to submit a refund request.
– For other cases where the credit arises after the five-year period or in the last 90 days, the taxpayer has 90 days from the date the balance arose to submit a refund request.
– The FTA must review refund requests and notify the taxpayer of its decision (approval or rejection).
– If the refund request is not submitted within the specified timelines, the taxpayer’s right to claim the refund expires permanently.

Statute of Limitations: 5 years standard, with extensions for refund-related cases.

FTA Guidelines: Binding practical guidance to be issued.

Transitional Relief

Transition Relief for Expired or Expiring Refund Rights: Taxpayers whose five-year refund period has already expired—or will expire within one year from the effective date—may still claim refunds or apply credit balances if the request is submitted within one year from 1 January 2026 (i.e., until 31 December 2026). This offers a final opportunity to recover older balances (e.g., relating to 2018–2020).

Voluntary Disclosure Extension for Refund Cases: A Voluntary Disclosure may be submitted within two years of filing a refund application, even if the usual five-year VD deadline has passed—provided the FTA has not yet issued its decision on the refund.

Audits for Refund/Credit Applications: The FTA may audit or issue assessments relating to refund or credit applications outside the five-year period, as long as this is completed within two (2) years from the date the application was filed.

These changes provide businesses with greater clarity on the timelines for VAT refunds and the utilisation of excess credits, while also reducing the administrative burden associated with reverse-charge requirements and correction processes. At the same time, the updated rules increase the need for robust due-diligence procedures to prevent the denial of input tax claims. With the amendments becoming effective on 1 January 2026, businesses should proactively review and align their VAT and tax-compliance processes to ensure readiness and continued compliance.

The Administrative Penalties for Violation of Tax Laws in the UAE

The UAE Ministry of Finance (MoF) has issued Cabinet Decision No. 129 of 2025 on 9 October 2025, which will come into effect on 14 April 2026.

This decision introduces key changes aimed at harmonizing administrative penalties for VAT and Excise Tax with those under the UAE Corporate Tax framework, as established in Cabinet Decision No. 75 of 2023. The alignment is intended to promote consistency and clarity across the UAE’s tax system.

On Violations and Administrative Penalties related to the Implementation of Tax Procedures Law as per Cabinet Decision No. 129 of 2025 (effective from 14 April 2026).

Key penalties and changes:

1. Failure to keep required records and information: AED 10,000 per violation; AED 20,000 if repeated within 24 months.

2. Failure to submit tax data/records in Arabic: AED 5,000

3. Failure of the Taxable Person to submit a registration application: AED 10,000

4. Failure of the Registrant to submit a deregistration: AED 1,000 in case of late submission of the application and on the same date monthly, up to a maximum of 10,000.

5. Failure to inform FTA of changes to tax record: AED 1,000 per violation; AED 5,000 if repeated within 24 months

6. Legal Representative failed to notify appointment: AED 1,000

7. Failure of the Legal Representative to file a tax return on time. Legal representatives will be liable for penalties: AED 1,000 for the first time; AED 2,000 if repeated within 24 months.

8. Failure to submit the Tax Return: AED 1,000 for the first time; AED 2,000 if repeated within 24 months.

9. Late payment of payable tax: 14% per annum penalty (applied monthly on unpaid tax after the due date).

10. Incorrect tax return: AED 500 penalty applies. However, no penalty will apply if there is no difference in the amount of tax due after submitting VD

11. The submission of a Voluntary Disclosure on errors in the Tax Return, Tax Assessment or tax refund application: Penalty of 1% monthly on the tax difference from the day after the return/refund due date until the voluntary disclosure is submitted.

12. Failure to submit VD before audit notice: Fixed penalty of 15% + 1% monthly

13. Failure to cooperate with a tax audit under Article 20, Legal representatives will be liable for penalties: AED 20,000

14. Failure to calculate tax on behalf of another person: 14% per annum penalty (applied monthly on unpaid tax after the due date).

15. The failure to calculate tax that may be due on the import of goods: 50% of unpaid/ undeclared Tax