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As part of its commitment to international tax reforms, the UAE has introduced the Domestic Minimum Top-up Tax (DMTT) in line with the OECD’s Pillar Two framework. The legislation aims to ensure that multinational enterprises (MNEs) pay a minimum level of tax.
As the regulations as still at a nascent stage, the UAE Ministry of Finance has issued FAQs to clarify various aspects of the law. This article provides an overview of these FAQs surrounding the implementation, scope, and compliance requirements of the UAE DMTT.
OECD Review and Qualification Status
The UAE’s DMTT rules are currently undergoing a peer review process by the OECD’s Inclusive Framework to achieve ‘Qualified’ status. Initially, a transitional qualification mechanism allows for self-certification within 12 months of the legislation’s effective date (before January 1, 2026). A full legislative review will follow, ensuring consistency with the Global Anti-Base Erosion (GloBE) rules.
Non-Implementation of Income Inclusion Rule
The UAE corporate tax regime does not include a controlled foreign company (CFC) framework; hence, the Income Inclusion Rule (IIR) is not implemented. Instead, the DMTT safeguards the UAE’s tax base by preventing foreign jurisdictions from imposing top-up tax on UAE-based profits. The UAE may consider IIR implementation in the future.
UAE DMTT & Safe Harbour: Why Certain Variations Exist
The UAE's DMTT rules are designed to maintain Safe Harbour status while allowing flexibility. Certain deviations from the GloBE rules were necessary but carefully chosen to avoid disqualification from Safe Harbour benefits.
For example, excluding non-wholly owned Constituent Entities would have prevented the UAE DMTT from qualifying for Safe Harbour in other jurisdictions. Based on public consultation feedback, the UAE ensured that its rules remain aligned with Safe Harbour while minimizing compliance burdens.
Similarly, for Financial Accounting Net Income and Loss, the rules follow an Acceptable or Authorized Financial Accounting Standard, aligning with Safe Harbour conditions under OECD guidelines. Cabinet Decision No. 142 of 2024 ensures compliance through the Local Financial Accounting Standard Rule, preventing competitive distortions.
By striking this balance, the UAE retains its Safe Harbour status, benefiting businesses while maintaining global tax alignment.
Obligations of Exempt and Free Zone Entities
Exempt Persons and Qualifying Free Zone Persons under the UAE Corporate Tax Law must assess whether they fall within the scope of the DMTT. If applicable, they must comply with Cabinet Decision No. 142 of 2024, which includes calculating and paying any top-up tax due, along with necessary filings and notifications.
Other Important Matters
The FAQs clarify other important matters as follows:
- The UAE DMTT includes a mechanism will adopt OECD’s Administrative Guidance and Commentary to maintain Qualified and Safe Harbour status empowered under Articles 16 and 17 of Cabinet Decision No. 142 of 2024.
- English translations in the Official Gazette may omit legal references due to Arabic being the primary legislative language.
- MoF advises businesses to rely on official sources such as the FTA and the OECD website for accurate interpretations of the Corporate Tax Law and DMTT rules. Third-party analyses on social media may be misleading, and spreading inaccurate tax interpretations could result in legal consequences under UAE’s cybercrime laws.
Conclusion
Globally, the implementation of OECD’s Pillar Two framework is at an initial stage. We expect that there will be many unanswered issues and clarifications required under the law. The MoF and the FTA have been proactive in resolving these matters.
Disclaimer: Content posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.
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