United Arab Emirates Introduces Domestic Minimum Top-Up Tax
Chris Danes · Posted on: February 17th 2025 · read
The United Arab Emirates (UAE) has introduced legislation implementing a Domestic Minimum Top-Up Tax (DMTT) for Multinational Enterprises (MNEs).
This aligns with the OECD's Global Minimum Tax (GMT) of 15% for large international groups under the Pillar Two framework. The key highlights of the decision are summarized below.
Scope of UAE Pillar Two Rules
Entities are subject to the Domestic Minimum Top-up Tax (DMTT) under the following provisions:
- constituent entities located in the UAE are part of a Multinational Enterprise (MNE) group with consolidated revenues exceeding EUR 750 million in at least 2 of the last 4 fiscal years;
- joint Ventures (JVs) and their subsidiaries that are located in the UAE, provided their Ultimate Parent Entity (UPE) belongs to an MNE group meeting the EUR 750 million revenue threshold; and
- if a fiscal year is shorter or longer than 12 months, the EUR 750 million threshold must be proportionally adjusted.
if a fiscal year is shorter or longer than 12 months, the EUR 750 million threshold must be proportionally adjusted.
Excluded Entities
The following entities are exempt from DMTT:
- government entities;
- international organizations;
- non-profit organizations;
- pension funds;
- investment funds that qualify as an Ultimate Parent Entity UPE; and
- real estate investment vehicles classified as UPE.
Additionally, subsidiaries of these excluded entities may also qualify for exemptions, subject to specific ownership and activity criteria.
Computation of Pillar Two Income or Loss
The Pillar Two income or loss for each constituent entity is determined based on its financial accounting net income or loss, adjusted for:
- net tax expense;
- excluded dividends;
- excluded equity gains or losses;
- included revaluation method gains or losses;
- specific gains or losses from asset and liability disposals;
- asymmetric foreign currency gains or losses;
- policy disallowed expenses;
- prior period errors and accounting principal changes;
- accrued pension expenses and income; and
- excluded insurance reserves expenses.
Covered Taxes
Covered taxes include:
- income or profit taxes recorded in financial accounts;
- taxes imposed in lieu of corporate income tax; and
- taxes levied on retained earnings and corporate equity.
Further, covered taxes do not include:
- top-up tax accrued under a qualified IIR in another jurisdiction;
- top-up tax accrued under a qualified domestic minimum top-up tax (QDMTT) in another jurisdiction;
- taxes related to adjustments from a qualified UTPR in another jurisdiction;
- disqualified refundable imputation taxes; and
- taxes paid by insurance companies on returns to policy holders
Top-Up Taxes
The top-up tax percentage for a fiscal year is determined using the following formula: Top-Up Tax Percentage = Minimum Rate - Effective Tax Rate.
The Effective Tax Rate (ETR) is calculated in accordance with the DMTT framework, ensuring a minimum 15% taxation on in-scope MNEs.
The Effective Tax Rate (ETR) is calculated in accordance with the DMTT framework, ensuring a minimum 15% taxation on in-scope MNEs.
Safe Harbours
The legislation includes the following safe harbour provisions to simplify compliance:
- transitional CBCR safe harbour: temporary relief based on country-by-country reporting (CBCR) data, available until 2027;
- simplified calculation safe harbour: provides exemptions or simplified compliance if an entity meets any of the following:
- routine profits test: an entity's income does not exceed a defined threshold;
- de minimis test: an entity's revenue is below EUR 10 million and profit (or loss) is below EUR 1 million; and
- effective tax rate test: an entity's effective tax rate meets the required threshold.
The DMTT introduction to the UAE was announced on 6 February 2025 and is effective from January 2025.
Our experts' final thought
"The United Arab Emirates (UAE) has introduced legislation implementing a Domestic Minimum Top-Up Tax (DMTT) for Multinational Enterprises (MNEs). This aligns with the OECD's Global Minimum Tax (GMT) of 15% for large international groups under the Pillar Two framework."
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Chris Denning, Head of Corporate International Tax: [email protected]
Chris Danes, Tax Partner: [email protected]
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