Global Daily Tax News, UAE Drafts Law For Domestic Minimum Top-Up Tax, (Feb 12, 2025)

The United Arab Emirates has released draft legislation for the implementation of the OECD's global minimum tax framework on large multinational enterprises.

The domestic minimum top-up tax (DMTT) framework proposed by the UAE is in line with the Pillar Two model rules, which apply to MNE Groups that have a consolidated annual revenue of at least EUR750m in at least two of the four fiscal years immediately preceding the tested fiscal year. The fiscal year is the period covered by the MNE Group's consolidated financial statements.

Under the regime, the UAE will ensure that domestic entities are liable to a corporate tax rate on their profits of at least 15 percent. Failure to implement a DMTT would otherwise result in the collection of tax by other jurisdictions under the framework.

Among other things, the legislation provides that a top-up tax return must be filed with the Federal Tax Authority no later than 15 months after the last day of the reporting fiscal year. A transitional period of 18 months will be provided for the first transition year.

The UAE intends to offer two safe harbors under the framework – namely, the transitional CbCr safe harbor and the simplified calculations safe harbor. These provide that, temporarily, a group may rely on simpler calculations, based on CbC report data, to demonstrate taxation at a sufficiently high corporate tax rate or that minimal tax is at stake, where an entity's revenue is less than EUR10m or its average Pillar Two income in the UAE is less than EUR1m.

The framework will be introduced with retroactive effect, for fiscal years beginning on or after January 1, 2025.