The United Arab Emirates (UAE) is making significant strides toward implementing a global minimum tax (GMT), a move set to reshape the tax landscape for multinational enterprises (MNEs) operating within its borders. As part of this initiative, the UAE’s Ministry of Finance (MoF) has launched a digital public consultation aimed at gathering insights from stakeholders on how best to integrate this international tax standard with the nation’s existing Corporate Tax (CT) system.
What is the Global Minimum Tax?
The GMT, which targets MNEs with annual consolidated revenue exceeding €750 million (approximately Dh3 billion), mandates a minimum tax rate of 15% on excess profits earned from each jurisdiction in which they operate. This initiative is part of the global anti-base erosion (GloBE) rules, comprising the income inclusion rule (IIR) and the undertaxed profits rule (UTPR). These rules are designed to ensure that MNEs contribute their fair share to the economies from which they profit, aiming to establish a universal benchmark akin to a “minimum wage for taxes.”
Current Status of GMT Implementation in the UAE
As of now, the UAE MoF is in the consultation phase, actively seeking input from multinational groups, advisors, service providers, and investors. This process is critical for addressing domestic implementation challenges, minimizing compliance costs, and exploring policy options for the income inclusion rule, undertaxed profits rule, and a potential domestic minimum top-up tax (DMTT).
The Consultation Questionnaire
The consultation covers several key areas, including:
- The design and implementation of the GMT in the UAE.
- The potential introduction of a UAE-specific domestic minimum top-up tax.
- Administration matters related to the new tax system.
UAE’s Position in the Global Tax Agreement
In November 2023, the UAE officially joined the GMT agreement, signaling its commitment to aligning with global tax reforms. This includes amendments to its Corporate Income Tax Law and plans to fully implement the OECD’s Pillar Two rules by 2025.
Who is Affected by the GMT in the UAE?
The GMT is not industry-specific; any large MNE meeting the specified revenue threshold will be subject to the tax in the UAE. This includes a broad range of companies, from tech giants to manufacturing conglomerates, ensuring that substantial businesses contribute appropriately regardless of their specific sector.
Global Impact and Adoption
The push for a minimum tax rate has seen adoption in several countries, particularly those previously considered tax havens, such as Ireland, Luxembourg, Switzerland, and Barbados. These countries are actively reforming their tax laws to comply with the new global standards, which are intended to curb tax avoidance and ensure fairness in the taxation of multinational corporations.
Understanding Key Terms: IIR, UTPR, and DMTT
- Income Inclusion Rule (IIR): Ensures that MNEs’ profits are taxed at a minimum rate globally. It requires a parent entity to pay additional tax if its subsidiaries’ profits are taxed below the minimum rate.
- Undertaxed Profits Rule (UTPR): Serves as a secondary mechanism to enforce the GMT by denying tax deductions or requiring adjustments for payments to entities in low-tax jurisdictions.
- Domestic Minimum Top-Up Tax (DMTT): Allows the implementation of domestic rules aligned with the GMT, ensuring that any additional tax revenue is collected locally before considering other liabilities.
As the UAE moves forward with its implementation of the GMT, it is crucial for businesses operating in the region to stay informed and engaged with the consultation process to navigate the evolving tax environment effectively.
