UAE and GLOBAL MINIMUM TAX - FAQs

In my 30 years of work as Finance & Tax Professional, I have never been part of a germinating & evolving Tax Regime & Structure before Y2017. UAE has made me witness this unfolding of the story and history being created around my living here. First, Excise, then VAT, then the suit of ESR-CbCR-UBO+ and currently Corporate Tax.

The latest development is in the area of Global Minimum Tax.

The Ministry of Finance (MOF) and UAE collaborated with the Organization for Economic Cooperation and Development (OECD) in hosting a Regional Forum on the Global Minimum Tax (i.e. Pillar Two) in Dubai around September this year (https://mof.gov.ae/uae-oecd-host-regional-forum-on-the-global-minimum-tax/). During that MOF announced that the UAE will not implement Pillar 2 rules before 2025.

?In the week gone by, UAE published Federal Decree Law No. (60) of 2023 amending certain provisions of Federal Decree Law No. (47) of 2022 on the Taxation of Corporations and Businesses [“CIT Law”] in the Official Gazette. Until this week gone by, there was no mention in the CIT Law of the 15% global minimum tax rate applicable for Multinational Enterprises (MNEs).

?This is the first step to Pillar 2

?There are three burning questions related to this:

?Question #1: Will ALL companies be liable to Global Minimum Tax?

No, not at all. According to the OECD, the new rules apply to multinational groups whose consolidated revenues exceed EUR 750 million (AED 3.15 billion) in at least two of the last four years. This will exclude lots of companies falling below that threshold. On the other hand, that’s just the first step and we are yet to see what happens next.

?Question #2: When will the companies be required to pay?

?Not so fast. OECD rules are one thing, but they do not impose the top-up tax liability yet. First, the local jurisdictions need to choose the most appropriate mechanisms of application and bring it to their own local tax legislation. Issuance of Federal Decree Law No. (60) of 2023 ?is just the first step in a series of steps. It is expected that the changes will happen in many countries by the end of 2024 or somewhere in Y2025.

Question #3: How will this all work?

?The Global Minimum Tax is a two-pillar approach.

Pillar One addresses the issue of profit shifting by multinational companies by expanding country’s authorities and taxing rights, and

Pillar Two makes sure that multinational companies pay a minimum level of tax on their global income.

It is Pillar Two that will have significant effects on taxes and reporting.

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