Finance Ministry Introduces Top-up Tax for Multinational Enterprises

Post by: Bandan Preet

The Ministry of Finance has issued Cabinet Decision No. 142 of 2024, introducing the Top-up Tax for Multinational Enterprises (MNEs). This announcement provides further information about the UAE Domestic Minimum Top-up Tax (UAE DMTT), which was first mentioned by the Ministry on December 9, 2024.

The UAE DMTT is designed to align with the GloBE Model Rules developed by the Organisation for Economic Co-operation and Development (OECD). It will apply to companies that are part of multinational groups operating in the UAE. Specifically, it will impact groups with annual global revenues of €750 million or more, as reported in the Consolidated Financial Statements of their Ultimate Parent Entity in at least two out of the four financial years before the year when the UAE DMTT becomes applicable.

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To ensure fairness, the UAE DMTT offers relief through a "Substance-based Income Exclusion." This means that companies can reduce the amount of income subject to tax by accounting for factors like payroll and the value of tangible assets. The exclusion reduces the net income subject to tax by deducting an amount tied to these elements, helping to determine what is considered "Excess Profit" for tax purposes.

In addition, the UAE DMTT includes a "de minimis exclusion." This allows companies to avoid the tax if they meet specific conditions. If an entity qualifies under these criteria, its UAE DMTT will be set to zero.

To support its status as a top global investment hub, the UAE has structured the UAE DMTT to exclude certain "Investment Entities." These are defined under the rules to protect investment activity and ensure a favorable environment for growth.

As part of the transition to this new tax, the UAE will not impose the DMTT during the early stages of an MNE Group’s international activity. This exemption applies as long as none of the UAE-based entities are owned by a parent company in another country that is subject to a Qualified Income Inclusion Rule.

The UAE DMTT has been crafted to align with the OECD’s guidelines. Its implementation and interpretation will follow the OECD’s Commentary and Administrative Guidance to maintain consistency with international standards.

This step reflects the UAE’s commitment to staying competitive on the global stage while meeting its obligations under international tax frameworks.

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