New UAE tax? Here's what you need to know about global minimum tax.

The UAE's Ministry of Finance (MoF) has initiated a process to gather feedback from corporations regarding the potential implementation of a global minimum tax within the country. This consultation is open to all stakeholders, with a particular emphasis on engaging the "global community" of multinational entities operating in the UAE, along with their advisors, service providers, and investors.

The ministry aims to gather insights that will inform its approach to various aspects of implementing the global minimum tax, including domestic implementation issues and interactions with the UAE's Corporate Tax (CT) system. Additionally, it seeks input on strategies to minimize compliance costs while exploring policy options related to potential implementation of the income inclusion rule (IIR), undertaxed profits rule (UTPR), and a domestic minimum top-up tax (DMTT).

Stakeholders are encouraged to submit their responses by April 10 through the ministry's website.

The global minimum tax (GMT) primarily targets multinational enterprises (MNEs) with annual consolidated revenue exceeding €750 million (approximately Dh3 billion). This tax framework ensures that such MNEs pay a minimum tax rate of 15 percent on excess profits generated across jurisdictions where they operate. The key components of this framework, the income inclusion rule (IIR) and undertaxed profits rule (UTPR), are designed to prevent base erosion and profit shifting.

Farah Mourad, senior market analyst at Equiti Group, emphasized that the global minimum tax serves as a universal benchmark agreed upon by countries to establish a baseline for corporate taxation. It aims to ensure that MNEs contribute their fair share to society and maintain a level playing field across jurisdictions.

While the UAE has launched a digital public consultation on implementing the tax, the ministry emphasizes that the consultation document does not represent the final policy position of the UAE. Further details regarding the UAE's implementation of the tax will be announced in due course.

The consultation questionnaire covers various aspects, including the implementation of the GMT in the UAE, the design of a potential domestic minimum top-up tax, and administrative matters related to substance-based incentives.

The UAE signed the GMT agreement in November 2023 and has taken significant steps toward aligning with global tax reforms. However, specific measures, such as the OECD's Pillar Two rules, have been delayed until 2025.

George Khoury, global head of education and research at CFI, clarified that the global minimum tax applies to any large multinational enterprise meeting the criteria, regardless of industry.

Implementation of minimum tax frameworks is already underway in some countries, particularly those historically operating as tax havens. More than 40 countries are progressing toward implementing the minimum tax, signifying a significant shift in international tax policies.

The terms income inclusion rule (IIR), undertaxed profits rule (UTPR), and domestic minimum top-up tax (DMTT) are key components of the global tax reform under the OECD/G-20 inclusive framework on base erosion and profit shifting (BEPS). These rules aim to ensure that MNEs pay a fair share of taxes globally and prevent profit shifting to low-tax jurisdictions.

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