UAE Ministry Of Finance Announces New Top-up Tax For Multinational Enterprises Aligned With OECD Guidelines

The Ministry of Finance has introduced Cabinet Decision No. 142 of 2024, detailing the Top-up Tax for Multinational Enterprises. This announcement follows the Ministry's earlier statement on December 9, 2024. The UAE Domestic Minimum Top-up Tax (UAE DMTT) aligns with the Organisation for Economic Co-operation and Development's (OECD) GloBE Model Rules.

The UAE DMTT targets entities within Multinational Enterprises (MNEs) operating in the UAE. It applies to those with annual global revenues of €750 million or more, as reflected in the Consolidated Financial Statements of their Ultimate Parent Entity for at least two out of four preceding financial years.

A key feature of the UAE DMTT is its Substance-based Income Exclusion. This carve-out reduces net Pillar Two income subject to the tax by considering payroll and tangible asset values. This approach helps determine Excess Profit for calculating the UAE DMTT.

The tax also provides an exclusion if an entity meets specific de minimis criteria. Under these conditions, the UAE DMTT is set to zero, provided certain requirements are fulfilled. This aims to maintain competitiveness by excluding Investment Entities as defined under these rules.

To support economic growth, a transitional measure exempts MNE Groups from UAE DMTT during their initial phase of international activity. This exemption applies if no ownership interests in UAE entities are held by a parent entity subject to a Qualified Income Inclusion Rule elsewhere.

The UAE DMTT should be interpreted following OECD Commentary and Administrative Guidance. These resources are available online for further reference. The full Cabinet Decision No. 142 of 2024 can be accessed on the UAE Legislation's website: www.uaelegislation.gov.ae/en.

With inputs from WAM