Introduces the UAE domestic minimum top-up tax under the OECD Pillar Two framework for constituent entities of multinational groups with consolidated revenue of EUR 750 million or more in at least two of the previous four fiscal years, applying to fiscal years beginning on or after 1 January 2025.
Cabinet Decision No. 142 of 2024 introduces the UAE Domestic Minimum Top-up Tax, the country's implementation of the OECD Pillar Two global minimum tax for large multinational groups. The Decision itself has three articles: Article 1 imposes the top-up tax in accordance with the annexed rules, Article 2 applies it to fiscal years beginning on or after 1 January 2025 and Article 3 brings it into effect on 1 January 2025. It was issued on 31 December 2024 under the Corporate Tax Law as amended by Federal Decree-Law No. 60 of 2023, which authorised the Cabinet to impose a top-up tax on multinational enterprises, and it is in force.
The annexure follows the structure of the OECD Model Rules. Article 1.1 applies the tax to Constituent Entities of an MNE Group with annual revenue of EUR 750 million or more in its consolidated financial statements in at least two of the four fiscal years immediately preceding the tested year. Article 1.5 excludes governmental entities, international organisations, non-profit organisations, pension funds, and investment funds and real estate investment vehicles that are ultimate parent entities, with further categories in Article 1.5.2. Article 2 charges the tax on Constituent Entities located in the UAE, on UAE joint ventures and their subsidiaries and on certain stateless reverse hybrids, and exempts UAE investment entities.
Articles 3 and 4 compute Pillar Two income or loss and adjusted covered taxes from the financial accounts. Article 5 then sets the charge: the UAE effective tax rate is adjusted covered taxes divided by net Pillar Two income (Article 5.1); the top-up tax percentage is the Minimum Rate less that effective rate (Article 5.2.1); excess profit is net Pillar Two income less the substance-based income exclusion (Article 5.2.2); and the top-up tax is the percentage applied to excess profit plus any additional current top-up tax (Article 5.2.3). The substance-based income exclusion in Article 5.3 carves out 5% of eligible payroll costs and 5% of the carrying value of eligible tangible assets in the UAE, with an annual election to forgo it. Article 5.5 lets the filing entity elect a zero top-up tax where average Pillar Two revenue is below EUR 10 million and average Pillar Two income is a loss or below EUR 1 million. Articles 6 and 7 deal with restructurings, joint ventures, multi-parented groups and investment entity elections.
Article 8 governs filing: every UAE Constituent Entity, joint venture and joint venture subsidiary must file a top-up tax return with the Federal Tax Authority, directly or through a domestic designated filing entity, containing information equivalent to the Pillar Two information return, no later than 15 months after the last day of the reporting fiscal year, or 18 months for the first transition year, with a simplified jurisdictional approach available. The preamble cites the Tax Procedures Law, which supplies the administration and penalty framework.
Constituent Entities located in the UAE, including UAE joint ventures and their subsidiaries, of multinational groups with consolidated annual revenue of EUR 750 million or more in at least two of the four preceding fiscal years, for fiscal years beginning on or after 1 January 2025. Governmental entities, international organisations, non-profits, pension funds and ultimate-parent investment funds are excluded.
| Articles 1–3 | The Decision imposes the top-up tax in accordance with the annexed rules, applies it to fiscal years beginning on or after 1 January 2025 and takes effect on that date. |
| Article 1.1 | Scope: Constituent Entities of an MNE Group with annual revenue of EUR 750 million or more in the consolidated financial statements of the ultimate parent in at least two of the four fiscal years immediately preceding the tested fiscal year, pro-rated for fiscal years other than twelve months. |
| Article 1.5 | Excluded Entities: governmental entities, international organisations, non-profit organisations, pension funds, and investment funds or real estate investment vehicles that are ultimate parent entities, together with the further categories in Article 1.5.2. |
| Article 2 | Charges the top-up tax on Constituent Entities located in the UAE, UAE joint ventures and their subsidiaries and certain stateless reverse hybrids, allows a designated filing entity to account for it, and exempts UAE investment entities. |
| Article 5.1 | The UAE effective tax rate for a fiscal year is the sum of adjusted covered taxes of the UAE Constituent Entities divided by their net Pillar Two income. |
| Article 5.2 | The top-up tax percentage is the Minimum Rate less the effective tax rate; excess profit is net Pillar Two income less the substance-based income exclusion; the top-up tax is the percentage applied to excess profit plus any additional current top-up tax. |
| Article 5.3 | The substance-based income exclusion removes 5% of eligible payroll costs of eligible employees and 5% of the carrying value of eligible tangible assets located in the UAE, unless the filing entity elects annually not to apply it. |
| Article 5.5 | At the filing entity's election the top-up tax is zero where the average Pillar Two revenue of the UAE entities is below EUR 10 million and the average Pillar Two income is a loss or below EUR 1 million. |
| Articles 7.3–7.5 | Five-year elections for investment entity tax transparency, the taxable distribution method and equity investment inclusion, with rules for qualified flow-through tax benefits. |
| Article 8.1 | Each UAE Constituent Entity, joint venture and joint venture subsidiary files a top-up tax return with the Federal Tax Authority, directly or through a domestic designated filing entity, with information equivalent to the Pillar Two information return, no later than 15 months after the end of the reporting fiscal year, or 18 months for the first transition year. |
The Decision contains no penalty table of its own in the part of the text that could be read; its preamble cites Federal Decree-Law No. 28 of 2022 on Tax Procedures, under which administrative penalties for late or incorrect returns and payments are set by Cabinet decision.
Only our largest group clients are in scope, but for a UAE subsidiary of a EUR 750 million group the Decision changes the answer to the free zone question: a Qualifying Free Zone Person taxed at 0% will see its UAE effective rate lifted to the Minimum Rate by this top-up tax, so the 0% regime no longer delivers a saving for such entities. When we administer a UAE holding company or operating subsidiary of an in-scope group we obtain the group's revenue test from the parent each year, confirm whether the UAE entities qualify for the Article 5.5 de minimis election, collect the payroll and asset figures for the substance-based exclusion and align the 15-month filing deadline in Article 8.1 with the parent's Pillar Two information return. For groups near the threshold we flag the two-of-four-years test so that a single strong year does not catch them unprepared.
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