The UAE's ministry of finance has issued a new decision on the filing obligations for top-up tax on multinationals.
The UAE's domestic minimum top-up tax (DMTT), applies to multinational enterprises with consolidated global revenue of €750 million ($793 million) or more in at least two of the four financial years immediately preceding the financial year in which the tax applies. It has been in effect since January 1 last year.
The latest decision specifies the entities that are required to file a Pillar Two information return with the Federal Tax Authority.
They include constituent entities – excluding any investment entity located in the UAE and joint venture and JV subsidiaries in the Emirates. It also applies to a “stateless constituent entity that is a reverse hybrid entity created in accordance with the laws of the UAE”.
A reverse hybrid entity is regarded as tax transparent by its own territory, but opaque by the territory of an owner. A stateless entity refers to one whose income is exempt from tax in the main company's home country and has no independent tax home.
The DMTT is in line with the Organisation for Economic Co-operation and Development's two-pillar reform programme, which set up a global minimum corporate tax to ensure large multinational enterprises pay at least 15 per cent tax on profits in each country where they operate. The initiative is aimed at addressing tax challenges arising from the digitalisation and globalisation of the economy and putting a floor on tax competition, according to the OECD.
The UAE introduced the federal corporate tax with a standard statutory rate of 9 per cent starting from the financial year beginning on or after June 1, 2023.
It brought the income of companies exceeding Dh375,000 within the taxable bracket. Taxable profits below that level are subject to a tax of zero per cent.
The UAE’s DMTT has also qualified for the OECD Pillar 2 safe harbour, which reduces the administrative burden for both MNEs and the tax administration as top-up calculations are not required to be performed in other jurisdictions.
The latest ministerial decision “forms part of the UAE’s continued implementation of the Pillar Two requirements and reaffirms the country’s commitment to enhancing international tax transparency, while providing greater tax certainty and clarity for multinational enterprises regarding their reporting obligations”, the ministry said.
The entities can either file it directly or through a designated local entity.
