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The UAE MoF has published a list of Frequently Asked Questions (“FAQs”) on its Pillar 2 Domestic Minimum Top-up Tax (“DMTT”) – available here: https://mof.gov.ae/uae-domestic-minimum-top-up-tax/
The list includes a number of key clarifications, in particular:
- Whether the UAE DMTT is ‘Qualified’: Although it is ultimately up to the OECD peer review process to determine whether the UAE DMTT is expected to be ‘Qualified’, Qualified status is expected to be achieved given that the UAE DMTT rules are very closely aligned to the Global Anti-Base Erosion (“GloBE”) Model Rules.
- What about the Income Inclusion Rule (“IIR”)? At this stage, the UAE has decided not to implement the IIR charging mechanism (i.e. collection of Top-up Tax in relation to foreign subsidiaries/foreign based Permanent Establishments. This is in line with the position that the UAE has not included a Controlled Foreign Company (“CFC”) regime within its Corporate Tax Law. However, the UAE will continue to monitor the implementation and effectiveness of the DMTT to assess whether an IIR should be introduced in the future.
- Differences from OECD Model Rules: Whilst there are variations between the UAE DMTT rules and the OECD GloBE rules, the variations are limited to those which (in line with OECD Commentary and Administrative Guidance) do not compromise the ability of the UAE DMTT to benefit from the QDMTT Safe Harbour - including, for example, exclusions for investment entities and MNE Groups in the initial phase of international activity.
- Alignment with OECD guidance: The UAE DMTT has a mechanism to adopt the OECD Administrative Guidance and Commentary. Any future changes to the Administrative Guidance and Commentary will be considered by the MoF in due course.
- Which accounting standard should be followed? In line with the GloBE Model Rules, the Financial Accounting Net Income/Loss of a company may be computed using an Acceptable Financial Accounting Standard or an Authorized Financial Accounting Standard that is adjusted to prevent Material Competitive Distortions, rather than the financial accounting standard used in the Consolidated Financial Statements. In this regard, the DMTT rules have been drafted in a manner that ensures that the UAE DMTT meets the Local Financial Accounting Standard Rule for the purposes of complying with the QDMTT Safe Harbour.
- What about Qualifying Free Zone Persons (“QFZP”s)? The FAQs clarify that UAE QFZPs are not precluded from complying with the UAE DMTT rules where the thresholds are met.
- Where is further information available? The MoF has confirmed that:
- Only official publications from the MoF and the FTA regarding the Pillar 2 legislation should be relied upon.
- Further guidance on the UAE DMTT will follow in due course.