Important Update on BEPS Pillar Two Legislation in the UAE
The United Arab Emirates (UAE) has introduced Cabinet Decision No. 142 of 2024, implementing the Domestic Minimum Top-up Tax (DMTT) in alignment with the OECD’s Base Erosion and Profit Shifting (BEPS) Pillar Two framework. This ensures that large multinational enterprises (MNEs) operating in the UAE are subject to a minimum effective tax rate of 15% on locally earned profits.
Key Highlights of the Legislation
Applicability
The DMTT applies to UAE-based constituent entities of MNEs with consolidated global revenues of at least €750 million in at least two of the last four fiscal years. This includes joint ventures and certain reverse hybrid entities operating in the UAE.
Effective Date
The legislation takes effect for fiscal years beginning on or after January 1, 2025.
Excluded Entities
The following entities are exempt from DMTT:
- Government bodies, international organizations, non-profits, pension funds, and investment funds that qualify as Ultimate Parent Entities (UPEs).
- Entities owned at least 95% or 85% by the above groups, subject to specific conditions.
Safe Harbour Provisions
To ease compliance, the UAE has adopted Transitional Country-by-Country Reporting (CbCR) Safe Harbour rules, applicable for fiscal years before January 1, 2027, and ending before July 1, 2028. If certain conditions—such as de minimis income, simplified effective tax rate, or routine profit thresholds—are met, no top-up tax will be required for the period.
Tax Registration & Filing Requirements
Entities subject to the Top-up Tax must:
- Register with the Federal Tax Authority (FTA) in the prescribed timeframe and manner (details to be provided by the FTA).
- File a Top-up Tax Return and settle their liability:
- Within 15 months of the end of the reporting fiscal year.
- For the first transitional year, the deadline is 18 months from the fiscal year-end.
This legislative move reinforces the UAE’s commitment to international tax transparency and ensures a fair tax environment for MNEs operating in the country.
Next Steps for Businesses
✔ Assess your Effective Tax Rate (ETR) in the UAE to evaluate top-up tax exposure (a detailed impact analysis is essential).
✔ Free Zone entities should analyze the potential impact on their tax benefits.
✔ Enhance tax compliance & reporting to meet UAE and global tax regulations.
For expert guidance on how this legislation impacts your business, reach out to us:
📩 dhiraj@thefirst-check.com
📞 +971 50 251 0288
🌐 www.thefirst-check.com
CA Dhiraj Sankhi
