UAE issues new regulation for top-up tax on large corporations

The UAE's Ministry of Finance has released a new regulation concerning top-up tax for large corporations. The Domestic Minimum Top-up Tax (DMTT) applies to multinational enterprises with annual revenues of €750 million ($793 million) or more in at least two of the past four financial years. This regulation was introduced on January 1st of the previous year.

The new decision outlines which entities must file a Pillar Two information return with the Federal Tax Authority. These include constituent entities, excluding any investment entity located in the UAE, joint venture and JV subsidiaries within the Emirates, and stateless constituent entities that are reverse hybrid entities created under UAE law. A stateless entity is one whose income is exempt in its home country and has no independent tax presence.

The DMTT aligns with the Organisation for Economic Co-operation and Development's (OECD) two-pillar reform program, aiming to establish a global minimum corporate tax rate of 15% to ensure large multinational enterprises pay a minimum tax on profits in each operating country. The OECD introduced Pillar Two to address challenges arising from digitalization and globalization of the economy and to curb tax competition.

The UAE implemented its federal corporate tax with a standard rate of 9%, effective from financial years beginning on or after June 1, 2023. Companies with taxable profits exceeding Dh375,000 are subject to this rate, while lower profits are taxed at zero percent. The UAE's DMTT also qualified for the OECD Pillar 2 safe harbour, which reduces administrative burdens for multinational enterprises and tax administrations by eliminating the need for top-up calculations in other jurisdictions.

The latest ministerial decision reflects the UAE's commitment to international tax transparency and clarity for multinational enterprises regarding their reporting obligations. Entities can file this return directly or through a designated local entity.