For my first piece of 2026, I want to take a macro view of corporate tax, with a focus on the largest entities and the international landscape. Big changes are happening.
The UAE introduced corporate tax as part of the country’s effort to join the widely supported international effort to reduce competition through tax rates. The underlying issue being that a race to the bottom negatively affects all societies.
A global minimum effective tax of 15 per cent was agreed, the implementing body being the OECD through its Pillar Two framework. This is part of its Base Erosion and Profit Shifting initiative. It only applies to multinational entities where annual revenue exceeds Dh3.2 billion ($870 million).
There are questions whether the current 9 per cent corporate income tax rate in the UAE is going to rise to 15 per cent. This seems unlikely. The objective is to prevent large multinationals from abusing their global size rather than pressurise smaller entities, which are the backbone and the future of any national economy.
At the beginning of this year, the US announced a negotiated exception from the OECD 2021 agreement for American-based groups that fall within Pillar 2’s boundaries. This was agreed with both the OECD and the other G7 countries.
As a result of this, there has been much criticism from tax transparency groups who were hoping that a standardisation of international rules would reduce the myriad deployment of tax-fare vehicles.
For avoidance of doubt, the US remains in favour of the principles of Pillar 2. However, it sees the creation of an enforceable international jurisdiction in this area as an encroachment on its sovereignty.
The country's solution is to operate a parallel system. This began under President Donald Trump’s first term with the passing of the 2017 Tax Cuts and Jobs Act (TCJA). His successor, Joe Biden, did not reverse it.
It launched the Global Intangible Low-Taxed Income (GILTI) rule that ensured American entities could not hold profits in low tax foreign jurisdictions without paying a minimum effective tax rate.
Creative ownership structures, be it a mix of natural or juridical spliced into smaller strips, was legislated for. An unrelated ownership group that happened to be all American would equally fall under its provisions.
In 2025, the law was updated and renamed as Net CFC Tested Income (NCTI). Its effect increased the minimum percentage tax to be paid and tightened up some of the original provisions.
In operating its own system can the US cheat? Yes, but given the focus on having a quasi-laissez faire marketplace, it would seem unlikely.
An obvious question presents itself. Who is next? Is the EU organisationally coherent enough to build its own parallel regime? Often seen as solution-lethargic, as internal EU departments vie with national (ever changing) member governments, how long would it take the bloc to produce a signed-off solution that is more than the bones of one.
What of the other three large economies, the UK, China and India? The latter two are apt to move quickly with any solution going by their internal political arrangements. While the British government may have a large parliamentary majority, in its short time in power it has too often reversed announced tax policy. That aside, it is not obvious that there is an agreed plan of action being bandied around the Palace of Westminster let alone the Treasury.
Should these players seek exceptions or the right to operate parallel systems, would this not open the door for all other countries to seek similar individually developed equitable treatment?
An attempt to simplify and make the marketplace fair for all will then likely have gone from one tower of babbling rules to another. Moreover, as a new system it would take time to be generally understood and any nagging issues could become the loopholes of tomorrow.
Further, those countries that are a work in progress, converging towards what appeared to be an agreed road map, may begin to pause or extend the time frame of their efforts to ensure they align with whatever final model emerges.
Finally, in the UAE, will the Ministry of Finance and Federal Tax Authority review what has already been legislated, refine and allow extra time for the changes to be finalised?
Such an approach would likely be welcomed by UAE businesses who have had so many new regulatory regimes launched in the past few years.
