The UAE has announced details of a new tax and clarified incentives and exemptions for payers.
The Ministry of Finance has announced the issuance of Cabinet Decision No. 142 of 2024 on the introduction of the Top-up Tax for Multinational Enterprises, providing further details on the UAE Domestic Minimum Top-up Tax (DMTT).
This follows the announcement made by the Ministry on December 9, 2024.
UAE Domestic Minimum Top-up Tax
The DMTT is closely aligned with the GloBE Model Rules issued by the Organisation for Economic Co-operation and Development (OECD).
The DMTT will apply to Entities that are members of Multinational Enterprises (MNEs) operating in the UAE with annual global revenues of €750m ($775m) or more in the Consolidated Financial Statements of the Ultimate Parent Entity in at least two out of the four financial years immediately preceding the financial year in which the UAE DMTT applies.
The DMTT provides relief through a Substance-based Income Exclusion, a carve out which reduces net Pillar Two income subject to the DMTT to determine the Excess Profit for the purposes of computing the DMTT, by an amount calculated based on payroll and the carrying value of tangible assets.
Aligned with the GloBE Model Rules, the DMTT also allows for an exclusion where an Entity meets the relevant de minimis exclusion criteria, under which the DMTT for an Entity will be considered zero, provided that certain criteria are met.
To bolster the country’s competitiveness as a leading investment hub, the DMTT has been structured to exclude Investment Entities, as defined under these rules.
As part of a transitional measure and to create a tax environment conducive to economic growth, no DMTT will be levied during the initial phase of an MNE Group’s international activity, provided that none of the of the ownership interests of the Entities located in the United Arab Emirates are held by a parent entity subject to a Qualified Income Inclusion Rule in another Jurisdiction.
The DMTT should be interpreted in line with the Commentary and Administrative Guidance issued by the OECD, available via this link.
Cabinet Decision No. 142 of 2024 is available on the Legislation’s website: www.uaelegislation.gov.ae/en.
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