income is treated under UAE

Introduction

In line with the global tax reform initiative led by the OECD/G20 Inclusive Framework, the UAE will implement the Global Minimum Tax (GMT) under Pillar Two starting January 1, 2025. This marks a major shift in the UAE’s tax landscape, especially for large multinational enterprise groups (MNEs) operating in the country.

This blog explains how the 15% minimum tax works, who is affected, and what steps businesses should take now to prepare.

What is Pillar Two?

Pillar Two is part of the OECD’s Base Erosion and Profit Shifting (BEPS) 2.0 framework and includes a set of global rules that:

Set a minimum effective tax rate (ETR) of 15% on large multinationals
Apply regardless of the jurisdiction’s regular tax rate
Ensure that income not taxed adequately in one jurisdiction may be taxed in another

Who is Affected?

Businesses that meet the following conditions:

Belong to a Multinational Enterprise (MNE) Group with consolidated global revenue ≥ €750 million
Have operations or entities in the UAE

This includes Free Zone entities owned or controlled by foreign MNEs.

UAE’s Domestic Implementation

The UAE will introduce a Domestic Minimum Top-Up Tax (DMTT) effective January 1, 2025, to:

Ensure that profits taxed below 15% in the UAE are “topped up” domestically
Prevent other countries from taxing low-taxed UAE income

Compliance Requirements

MNE groups subject to Pillar Two must:

Calculate their Effective Tax Rate (ETR) per jurisdiction
Submit GloBE information returns detailing tax positions
Prepare for additional reporting and disclosure

FTA and the Ministry of Finance are expected to issue detailed regulations during 2024.

Final Thoughts

Pillar Two will reshape how large companies plan their tax structures globally. UAE-based MNEs or subsidiaries should begin analyzing their global ETR and prepare for additional compliance obligations in 2025.

Need Pillar Two Advisory?

Think Biz Management Consultancies supports:

Multinational ETR analysis
Top-up tax planning
Preparation of GloBE returns and disclosuTalk to us today to ensure your 2025 compliance is seamless.

Contact number: ‪+971 50 983 0334‬

Email ID: info@alphabets.ae