On 11 February 2025, the UAE Ministry of Finance (MoF), issued Cabinet Decision (CD) No. 142 of 2024, introducing a Domestic Minimum Top-Up Tax (DMTT) on Multinational Enterprises (MNEs). This measure implements a domestic top-up tax regime based on the Organisation for Economic Co-operation and Development (OECD) Pillar Two Model Rules. Resultantly, certain MNE groups may be required to pay DMTT on their income at the rate of 15% in the UAE.
What is DMTT?
The DMTT functions similarly to Corporate Tax (CT), ensuring that MNEs operating in the UAE are subject to a minimum level of taxation on their profits. It is designed to secure a minimum effective tax rate (ETR) in accordance with the OECD Pillar Two Model Rules, thereby preventing profit shifting and ensuring a consistent baseline level of taxation.
Applicability of DMTT
The DMTT applies to Constituent Entities (CEs)* and Joint Ventures (JVs) of MNE groups operating in the UAE whose consolidated annual turnover is at least EUR 750 million (approximately AED 3.15 billion.) in two or more of the last four fiscal years. The regime is effective for MNE groups in the UAE for financial years commencing on or after 1 January 2025.
As a consequence, UAE based MNE groups – including Exempt Persons or Qualifying Free Zone Persons (QFZPs) under the UAE CT Law – should assess whether they fall within the scope of the DMTT.
Entities that are covered within the scope of DMTT may have to undertake related filings and other compliance obligations, including calculating and paying applicable top-up tax.
Entities that are excluded from the application of DMTT: (i) Governmental entities; (ii) International organizations; (iii) Non-profit organizations; (iv) Pension funds; (v) Investment funds that are UPE; and (vi) Real estate investment vehicles that are Ultimate Parent Entities (UPE).
Key features of the UAE DMTT
- Effective Tax Rate (ETR):
A minimum ETR of 15% applies, imposing a top-up tax for low-tax UAE CEs that form part of in-scope MNE groups. - Interaction with the UAE CT Regime:
The DMTT operates as a supplementary tax to the UAE CT regime. It applies only to the CEs belonging to MNE groups meeting the EUR 750 million revenue threshold. - Income Inclusion Rule (IIR) not Implemented in the UAE:
The UAE has opted not to implement the IIR, which normally allocates a top-up tax starting at parent level. Instead, the UAE relies on the DMTT to protect its domestic tax base by preventing foreign jurisdictions from levying top-up tax on UAE sourced profits of in scope UAE CEs.
Additionally, the CD has not yet implemented the Undertaxed Profits Rule (UTPR).
- Registration for DMTT:
In scope entities will be required to register with the Federal Tax Authority (FTA). The FTA will further issue guidance on the timelines, procedures and requirements for both, registration and deregistration. - DMTT Returns:
The designated MNE group entity shall be required to file the DMTT return:- within 15 months following the end of the relevant financial year, or
- within 18 months for the first reporting year.
- DMTT Payment:
Any top-up tax due should be deposited by the same deadline as the DMTT return filing. - Pillar Two Information Return:
The MoF would issue a separate decision specifying the CEs or MNE group members required to file the Pillar Two information Return and related notifications. These filings are expected to align with the standard GloBE Information Return format. - Relief Available under DMTT:
- Transitional Country-by-Country Reporting Safe Harbors (TCSH):
When elected, the UAE top-up tax is deemed to be zero, provided the MNE group satisfies the following conditions:- De Minimis Threshold: UAE revenue is below EUR 10 million and a profit (loss) before income tax is below EUR 1 million as reported in Country-by-Country Report (CbCR)
- Simplified ETR Test: The UAE Simplified ETR is at least equal to the Transition Rate (16% for Fiscal Years beginning in 2025 and 17% for Fiscal Years beginning in 2026).
- Routine Profits Test: The Group’s UAE profit (loss) before CT does not exceed the Substance-based Income Exclusion applicable to the UAE based entities in the CbCR.
- Transitional Country-by-Country Reporting Safe Harbors (TCSH):
This safe harbour applies only to financial years commencing before 1 January 2027 and not ending after 1 July 2028. A qualified CbCR must be prepared to avail TCSH relief.
- Permanent Simplified Calculation Safe Harbors:
The UAE DMTT framework provides permanent simplified-calculation safe harbors. If a CE satisfies any of the prescribed tests, i.e., Routine Profits Test, De-Minimis Test or Effective tax rate test – the UAE top-up tax may be reduced to zero. - Initial Phase of International Activity:
A UAE CE may have its top-up tax reduced to zero, provided the following conditions are met:- The MNE group is present in no more than six jurisdictions
- The net book value of tangible assets (excluding the highest value jurisdiction) does not exceed EUR 50 million
- The UAE CE is not held by a parent entity applying a Qualified IIR
This relief is applicable for up to five years, subject to ongoing compliance with the prescribed conditions.
*Notes:
- Constituent Entities (CEs) – Entities or permanent establishments that are consolidated for purposes of the MNE Group’s Consolidated Financial Statements.
- Joint Ventures (JVs) – Entities whose results are included in the Ultimate Parent Entity’s (UPE’s) Consolidated Financial Statements under the equity method, where the UPE directly or indirectly holds an ownership interest of at least 50%.