The implementation of Pillar Two in the UAE has finally been released by the Cabinet Decision No. (142) of 2024 and published in the Official Gazette.
Applicable for Financial Years commencing on or after 1 January 2025, Multinational Enterprises (MNEs) with annual turnover of €750m or more in two out of four preceding fiscal years will be subject to a Supplementary Tax (“Domestic Minimum Top-up Tax" or “DMTT”) in the UAE, effectively imposing a minimum effective tax rate of 15%.
While we will be sharing a more detailed commentary in the coming days, the Pillar Two legislation implemented in the UAE is aligned with the OECD Global Anti-Base Erosion (“GloBE”) Model Rules and OECD guidance. The key features are as follows:
- Entities liable to pay top-up tax include Constituent Entities (“CEs”), Joint Ventures (“JVs”), Permanent Establishments (“PEs”) and Minority Owned Constituent Entities (“MOCEs”).
In line with the OECD Model Rules, the UAE regulations include exclusions related to Government and Investment Entities.
- Regarding the calculation of the Pillar Two liability, clarifications have been provided with regard to:
- Pillar Two Income or Loss Computation;
- Quantification of Adjusted Covered Taxes which provides more clarity on Pillar Two and UAE Corporate Tax interplay.
- Application of available Transitional CbCR Safe Harbours and Simplified Calculations Safe Harbour.
- More clarity has been provided on the compliance obligations in the UAE under the Pillar Two legislation: Pillar Two in-scope entities and Domestic Designated Filing Entities should register with the FTA before the deadline (the deadline for Pillar Two purposes still to be determined), and submit the Top-up Tax return and pay the Pillar Two liability within 15 months after the financial year or 18 months after the transitional year.
With the release of the rules, Pillar Two is now a reality in the UAE and MNEs must be ready for it. Pillar Two taxpayers in the UAE must assess not only the impact of the rules on their businesses in the UAE (scoping, tax provisioning, safe harbours) but also on their global tax policies including tax governance, technology implementations and data gathering.
