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5 April 202417 minute read

UAE Ministry of Finance launches public consultation regarding the implementation of Pillar Two

On 15 March 2024, the Ministry of Finance (MoF) of the United Arab Emirates (UAE) launched a public consultation paper on the implementation of the Global Minimum Tax or Global Anti-Base Erosion (GloBE) Model Rules (Pillar Two)1.

The public consultation document contains an overview of the UAE’s draft policy in relation to the implementation of Pillar Two in the UAE. The MoF has stated that the purpose of this consultation is to gather views from relevant stakeholders2 with respect to the potential policy choices and design options in relation to the implementation of the GloBE Rules in the UAE, including the potential implementation of the Income Inclusion Rule (IIR), the Undertaxed Profits Rule (UTPR) and a Domestic Minimum Top-up Tax (DMTT)3. The MoF has emphasized that the consultation document does not reflect the final view of the MoF or the UAE Government and is not intended to comprehensively address all possible aspects of the GloBE Rules or its implementation in the UAE.

The public consultation consists of two separate documents:

  • questionnaire, which focuses on the implementation of Pillar Two in the UAE, including implementation of the GloBE rules, the design of a potential UAE DMTT, administration matters, and substance-based incentives.
  • A guidance paper, which provides a concise summary of the GloBE Model Rules, its Commentary and Administrative Guidance.

The public consultation is scheduled to conclude on 10 April 2024. However, this deadline may be extended by the Ministry of Finance if deemed necessary.


What is Pillar Two?

Pillar Two, or the Global Minimum Tax initiative, targets Multinational Enterprise (MNE) Groups with annual consolidated revenue of or above EUR750 million or more in at least two of the previous four fiscal years. Broadly, it ensures that these MNEs pay a minimum tax of 15% in respect of the Excess Profits derived from every jurisdiction they operate in, through the GloBE Rules with two key interlocking charging mechanisms, the IIR and the UTPR4.

The GloBE Rules operate by charging a Top-up Tax on in-scope MNE Groups which have profits that are taxed below the minimum rate (ie 15%). This is achieved by calculating the MNE’s Effective Tax Rate (ETR) for all Constituent Entities in each jurisdiction where they operate (including Free Zone companies in the case of the UAE) and imposing a Top-up Tax for the difference between their ETR per jurisdiction and the minimum rate (ie where the ETR is below the minimum rate of 15%).

For a concise overview of the Pillar Two rules, we refer to the Guidance Paper published by the MoF, the GloBE Model Rules, its Commentary and Administrative Guidance.


Policy design options

The main policy options and design choices to consider for the UAE in relation to the implementation of Pillar Two are as follows:

  • domestic implementation issues
  • interactions between the GloBE Rules and the UAE’s Corporate Tax (CIT) system
  • way to minimise compliance costs
  • implementation of a DMTT
  • implementation of an IIR
  • implementation of a UTPR
  • substance-based incentives
Scope of GloBE Rules

The GloBE Rules are intended to apply only to ‘large multinationals’, which have been defined as MNE Groups with annual consolidated revenue of or above EUR750 million. However, the GloBE Model Rules do not prevent jurisdictions from applying an IIR on smaller groups headquartered in their jurisdiction even when the aforementioned threshold is not met.

The MoF has however indicated that the UAE does not intend to apply the GloBE Rules to UAE headquartered MNE Groups that are below the EUR750 million revenue threshold to prevent the imposition of an unnecessary compliance burden on smaller MNE Groups.

No equivalent UAE Dirham threshold

The public consultation document also indicates that the UAE considers adopting the Euro threshold of EUR750 million, rather than implementing an equivalent threshold in UAE Dirham. This is primarily done for practical reasons, as it enhances coordination amongst jurisdictions and avoids unnecessary discrepancies in the scope and operation of the GloBE Rules, which could occur as a result of currency fluctuations in the event a local currency threshold would be adopted.

Interestingly, to determine the scope for Country-by-Country Reporting (CbCR), the UAE has applied a threshold expressed in UAE Dirham (AED3.15 billion). In our view, it would make sense to also apply the Euro threshold for CbCR reporting, as the intention is also for these rules to apply to MNE Groups that meet the aforementioned revenue threshold.


Qualified Domestic Minimum Top-up Tax

An important aspect of the public consultation is the potential implementation and design of a Qualified Domestic Minimum Top-up Tax (QDMTT)5.

In October 2023, the UAE enacted an amendment to the Corporate Income Tax (CIT) Law6, introducing a DMTT for multinational enterprises7 to ensure their effective tax rate reaches 15%, aligning with the OECD’s BEPS Pillar Two guidelines. The Federal Law which introduced the amendment8 states that a forthcoming Cabinet Decision will outline the specific methodologies, terms, conditions, rules, and procedures for implementing the DMTT on MNEs. This decision will also specify when the new DMTT will come into force. The details of this Cabinet Decision are expected to be influenced by the feedback received during the public consultation process.

Implementing a QDMTT allows a jurisdiction to retain tax revenues on the profits of in-scope MNEs that would otherwise be subjected to top-up tax under the IIR or the UTPR in another jurisdiction. The QDMTT is designed to operate as a pound-for-pound reduction in any top-up tax liability charged by another country under either the IIR or the UTPR, effectively enabling countries like the UAE to keep tax revenues domestically rather than seeing them reallocated under the GloBE rules to foreign jurisdictions where the MNE operates. From a tax policy perspective, this arrangement benefits the domestic jurisdiction by potentially increasing its tax revenues but also simplifies compliance for MNEs by reducing the need to report tax liabilities to multiple jurisdictions, thereby lowering the risk of disputes and compliance costs associated with audits from various tax administrations.

The implementation of a QDMTT under the OECD’s GloBE rules provides jurisdictions with the flexibility to adapt certain elements to better align with their domestic tax systems, through what are referred to as ‘optional variations’. These variations allow countries to deviate from the strict guidelines of the GloBE rules in a way that ensures the overall objectives of ensuring a minimum 15% tax rate on MNEs are met while accommodating domestic tax policy considerations. For example, a jurisdiction could choose to apply the QDMTT in a manner that targets only certain types of income or exempts specific sectors or activities, provided such adaptations do not systematically result in lower taxation below the minimum rate. This flexibility is crucial for addressing local economic and policy goals, ensuring that the implementation of the QDMTT can be harmonized with existing tax incentives, and potentially simplifying compliance and administration burdens on both tax authorities and in-scope MNEs. Each jurisdiction’s approach to these optional variations will be shaped by its specific tax policy objectives and the need to maintain consistency with the overarching principles of the GloBE rules.

The public consultation paper indicates that the MoF is exploring the following optional variations from the standard GloBE rules9:

Scope of application of the QDMTT: the UAE has considered the application of the QDMTT to various groups/entities, including:

  • Consider the potential application of the QDMTT to pure domestic groups or small MNE Groups (ie MNE Groups that are not in scope of the GloBE Rules by virtue of their revenues being below the EUR750 million threshold). The MoF does not propose to apply a QDMTT to domestic groups or to small MNE Groups.
  • Consider limiting the QDMTT solely to wholly owned constituent entities, or alternatively, expand its applicability to include constituent entities with partial ownership. This decision will also influence how UAE entities qualify for safe harbour provisions under the GloBE rules10.
  • Consider applying the QDMTT to ‘stateless constituent entities’11, in particular stateless flow-through constituent entities and permanent establishments that are stateless constituent entities.
  • Consider applying the QDMTT to ‘Flowthrough Ultimate Parent Entities (UPEs)’12 or ‘Flowthrough Constituent Entities’.
  • Consider applying the QDMTT to ‘Investment Entities’ or ‘Insurance Investment Entities’.

Allocation of QDMTT liability among constituent entities: the GloBE rules allow for flexibility in terms of allocating the QDMTT amongst UAE constituent entities. Various allocation strategies are suggested by the MoF in the consultation document, such as:

  • applying the QDMTT on each constituent entity with an ETR below 15%; 
  • using a formula to apportion the QDMTT13; or
  • allocating the QDMTT charge to wholly owned constituent entities to prevent burdening minority investors.

For Joint Ventures (JVs) or Minority-Owned groups, the QDMTT can be assigned directly to any group member or constituent entity in the jurisdiction, with mechanisms to prevent double taxation when both JV partners are subject to GloBE or QDMTT rules. Ultimately, the goal is to ensure the total GloBE Top-up Tax is reduced or balanced out by the QDMTT, with any remaining top-up tax distributed among constituent entities as per GloBE guidelines.

Accounting standards: jurisdictions implementing a QDMTT can require the use of a specific, authorized financial accounting standards for calculating income or loss. The accounting standards for QDMTT purposes could potentially be different from the accounting standard used to prepare consolidated financial statements for statutory reporting purposes under domestic tax legislation or other regulatory requirements. To qualify as a QDMTT, a DMTT must adhere to authorized financial accounting standards. The UAE is proposing to use International Financial Reporting Standards (IFRS) as the accepted accounting standard for calculating income for UAE QDMTT purposes, in line with the requirements for UAE Corporate Income Tax.

Substance-Based Income Exclusion: under the GloBE Rules, jurisdictions are not required to implement a Substance-Based Income Exclusion (SBIE)14 for the QMDTT. However, if a SBIE is implemented, it must align with the limitations set by the GloBE Rules. The MoF suggests that a SBIE is included in the UAE QDMTT to ensure consistency with the intended outcomes of the GloBE Rules.

MNE Groups in their Initial phase of international activity: during the initial international phase of a MNE group, the top-up tax under the UTPR will be reduced to zero, provided the group operates in no more than six jurisdictions and its tangible assets outside its primary jurisdiction don’t exceed EUR50 million. This relief applies for the first five years the MNE group falls under the GloBE Rules, with specifics depending on when the UTPR rules take effect. There’s an optional provision for when the MNE’s main jurisdiction applies different criteria for this initial phase relief. In line with the options provided under the GloBE model rules, the UAE MoF proposes to offer relief from the UAE QDMTT to in-scope MNEs during the initial phase of their international activity but suggests limiting its application to cases where none of the ownership interests in the UAE Constituent Entities are held by a Parent Entity that is subject to a Qualified IIR15.

QDMTT safe harbour: the GloBE Model Rules introduces a QDMTT safe harbour, effectively reducing the top-up tax to zero in jurisdictions where an MNE Group meets the criteria. To qualify for the QDMTT safe harbour, a jurisdiction’s QDMTT policy must align with certain standards16. In the public consultation document, the UAE is evaluating stakeholder interest in aligning with the GloBE model rules to qualify for the QDMTT Safe Harbour (offering tax advantages but requiring adherence to certain standards) versus a more simplified QDMTT approach that might be easier for businesses but does not qualify for safe harbour benefits.

Compliance obligations: under the GloBE Model Rules, constituent entities of MNE Groups must file a GloBE Information Return (GIR) where the entity is located. The rules also provide for the possibility to file a GIR in a single jurisdiction that will then exchange the information with other jurisdictions under a coordinated filing and exchange mechanism. In July 2023, the OECD released a GIR template, aiming to streamline compliance and enhance information exchange. Under the GloBE Rules, the GIR and notifications shall be filed with the tax administration no later than 15 months after the last day of the reporting fiscal year. As a transitional measure, the filing deadline is no more than 18 months for the first fiscal year that an MNE Group comes within the scope of the GloBE Rules for the UAE.

The Ministry of Finance is proposing that liabilities under the GloBE Rules that are due in the UAE are paid annually and may align to the payment date under the UAE CIT Law (ie within 9 months following the end of the financial year) or follow the timelines set by the GloBE Rules. The UAE is additionally seeking feedback on whether a separate QDMTT return is necessary, preferences on QDMTT return format and filing, suitable deadlines for GloBE liabilities, adjustments to UAE CIT Law for QDMTT record-keeping, and the alignment of penalties with existing UAE tax procedures laws.


Substance-based incentives

Substance-based incentives are designed to support and reward companies for genuine economic activities and investments within a jurisdiction, aligning with the GloBE Rules’ objectives to combat profit shifting and ensure taxation is linked to where economic value is created. These incentives typically focus on the presence of substantial activities, such as significant employment levels or investment in physical assets, encouraging businesses to develop a real and meaningful presence in the economies where they operate. This approach aims to ensure fair taxation but also to foster economic growth by incentivizing companies to invest in local operations and workforce.

The public consultation document suggests that the UAE is considering the introduction of tax incentives aligned with the GloBE Model Rules under Pillar Two, aimed at maintaining its competitive edge and attracting businesses. These incentives could include both income-based incentives, like tax exemptions or reduced rates, and expenditure-based incentives, such as tax credits or deductions linked to investments. The UAE Ministry of Finance is evaluating flexible, investor-focused incentive packages while also considering compliance, practices in other jurisdictions, and possibly non-tax incentives to support this goal.



The release of the public consultation paper by the Ministry of Finance marks a significant step towards the UAE’s adoption of Pillar Two.

The consultation paper indicates that the Ministry of Finance is taking a strategic approach to the implementation of the GloBE Rules in the UAE and its effects on future investments by large multinationals. The MoF is duly considering and exploring various options with respect to the various Pillar Two mechanisms to retain the UAE’s attractiveness for investors and while keeping compliance obligations for businesses to a minimum.

The feedback from this consultation will help shape the application of the GloBE rules, both for UAE headquartered MNE Groups and foreign headquartered MNE Groups with constituent entities in the UAE.

1Pillar Two, or the Global Minimum Tax initiative, is an endeavor led by the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). It aims to establish a global minimum corporate tax rate of 15% to prevent multinational enterprises from shifting profits to low-tax jurisdictions. This initiative seeks to ensure that companies pay a fair share of tax wherever they operate, thereby reducing tax avoidance and levelling the playing field for global taxation.
2Whilst the MoF has stated that all interested parties are welcome to provide their input on the public consultation, given the scope of application of the GloBE rules, the MoF has in particular expressed its interest in receiving feedback from multinational groups, including their advisors, service providers and investors.
3A DMTT is defined as a domestic minimum tax that applies to constituent entities of in scope MNEs in a certain jurisdiction to ensure they pay a minimum level of tax domestically. Unlike a QDMTT, which is explicitly designed to align with the GloBE rules and has certain international qualifications, a DMTT focuses more on increasing domestic tax revenue from MNEs and might not necessarily be structured to ensure consistency with the specific outcomes of the GloBE rules.
4The public consultation document includes detailed commentary on the methodology of the IIR and UTPR, which are based on Article 2.1 of the GloBE Rules.
5A QDMTT is specifically designed to comply with the GloBE rules, applying a domestic minimum tax to local constituent entities of in-scope MNEs to ensure outcomes are consistent with global minimum tax objectives. This specification of alignment with GloBE rules is what differentiates a QDMTT from a general DMTT, which might not explicitly aim for such consistency. A DMTT is treated as ‘Qualified’ if it is functionally equivalent to the GloBE Rules. Whether a DMTT introduced by a jurisdiction can be treated as a QDMTT is assessed through a peer review process.
6Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses.
7The term ‘Multinational Enterprise’ has not been defined in Federal Decree-Law No. (60) of 2023 and will be specified through a separate Cabinet Decision.
8Federal Decree-Law No. (60) of 2023 Amending Certain Provisions of the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses.
9These are groups that only have activities within the UAE and therefore do not qualify as multinational groups by definition.
10For the UAE QDMTT to have safe harbour status, the application of the QDMTT should not be limited to wholly amount constituent entities in the UAE.
11Under the GloBE rules, stateless constituent entities refer to entities within an MNE Group that are not tax resident in any jurisdiction.
12Flow-through UPEs are entities at the top of the ownership chain of a MNE group that are not taxed as separate legal entities in their jurisdiction of formation. Instead, their income “flows through” to the tax returns of their owners or beneficiaries, who are then responsible for the tax obligations. This structure is common in jurisdictions where certain entities, like partnerships, are not subject to corporate tax at the entity level but instead pass their profits and losses directly to their owners for tax purposes.
13The formula could be based on the ratio of ‘GloBE income’ or ‘excess profit’ of the UAE constituent entity to the ‘GloBE income’ or ‘excess profit’ of all UAE constituent entities.
14The SBIE is a provision under the GloBE Rules that allows multinational enterprises to exclude a portion of their income from the minimum tax calculation. This exclusion is based on the substance of their operations, such as payroll expenses and tangible asset investments.
15Without implementing the principles of Article 9.3 of the GloBE Model Rules in a domestic context, such as through the UAE’s proposed mechanism for the QDMTT, the intended relief during the initial phase of international activity provided under the GloBE Model Rules could be undermined. By tailoring the application of the QDMTT, the UAE aims to preserve the relief’s effectiveness, ensuring that MNE groups genuinely in their early stages of international expansion are not prematurely subjected to additional tax burdens through the QDMTT, thus aligning with the broader objectives of the GloBE rules.
16See MoF Guidance Paper, page 14.