Scope and Applicability of UAE’s Domestic Minimum Top-up Tax (DMTT)

This article outlines the scope of DMTT rules, identifies the entities to which it applies, and highlights exemptions.

Scope of the DMTT Rules

The DMTT applies to MNEs that meet the following conditions:

• Operate in multiple jurisdictions and have a global presence.

• Fall within the scope of Pillar Two, as defined by the OECD GloBE Model Rules.

• Have consolidated revenues exceeding EUR 750 million in at least two of the last four fiscal years, in accordance with Country-by-Country Reporting (CbCR) thresholds.

• Are subject to an ETR below 15% in the UAE, necessitating a top-up tax to align with the global minimum tax standard.

The objective of the DMTT is to retain the top-up tax revenue within the UAE rather than allowing other jurisdictions to impose additional taxation on UAE-based income of MNEs.

Entities Subject to the DMTT Rules

The primary entities that fall under the purview of the DMTT include:

1. Multinational Enterprises (MNEs) Meeting the Threshold

   • UAE-headquartered MNEs with global operations.

   • Foreign MNEs operating in the UAE through subsidiaries, branches, or permanent establishments (PEs).

2. Entities Operating in Free Zones

   • While Free Zone entities generally benefit from tax incentives, those part of an MNE Group falling within the scope of Pillar Two may still be subject to the DMTT if their ETR is below 15%.

3. Companies with Low-Tax Structures

   • Entities leveraging favorable tax regimes in the UAE, which result in an ETR lower than the global minimum tax requirement.

Excluded Entities from the DMTT Rules

Certain entities and groups are explicitly excluded from the application of DMTT, ensuring that businesses outside the OECD’s scope are not impacted. These include:

1. Entities Below the Revenue Threshold

   • Groups with annual consolidated revenues below EUR 750 million are not subject to DMTT.

2. Government and Public Benefit Entities

   • UAE government-controlled entities.

   • International organizations, non-profit organizations, and pension funds.

3. Investment and Real Estate Funds

   • Regulated investment funds and their holding structures.

   • Real Estate Investment Trusts (REITs) meeting specific regulatory criteria.

4. Standalone UAE Businesses

   • UAE-based companies with no international operations do not fall within the scope of the OECD’s Pillar Two framework, hence are not subject to DMTT.

Conclusion

The UAE’s Domestic Minimum Top-up Tax (DMTT) aligns the country with global tax standards. While it primarily targets large MNEs with an ETR below 15%, several entities are excluded, ensuring a balanced approach. Businesses should review their tax structures to determine their exposure.

For further insights, businesses should refer to the official guidance from the UAE Ministry of Finance.

In the next article, we will discuss the calculation of DMTT rules.