.svg){kind=small}
%402x.svg){kind=small}
The UAE Ministry of Finance (MOF) recently issued a consultation paper along with a guidance paper and consultation questionnaire in relation to the implementation of Global Minimum Tax or Global Anti-Base Erosion Model (Pillar Two) (“GloBE") Rules. The consultation is open for public comments till 10th April 2024.
To ease the compliance burden of the global minimum tax, the proposal offers several concessions. Companies can implement a Qualified Domestic Minimum Top-up Tax (QDMTT), a domestic tax aligned with GloBE rules, which could reduce their overall top-up tax liability. Additionally, companies with a substantial physical presence in a country can benefit from Substance-Based Income Exclusions (SBIE), which allow deductions for payroll costs and tangible assets, lowering their taxable income. Finally, de-minimis exclusions provide relief for small businesses with minimal revenue and profits in a specific country, exempting them from the complexities of the GloBE rules.
Determining a company's top-up tax liability under the GloBE rules follows a clear process. First, the multinational enterprise's (MNE's) global reach and subsidiary locations are mapped. Then, each subsidiary's taxable income and taxes paid are analyzed. Finally, an effective tax rate (ETR) is calculated. If the ETR falls below 15%, a top-up tax is applied, considering any domestic minimum tax (QDMTT) already paid to minimize the final amount owed.
The UAE targets multinational enterprises (MNEs) with UAE subsidiaries or headquarters exceeding €750 million in consolidated revenue for this global minimum tax implementation. Consultation paper seeks insights from stakeholders on potential impacts on MNE investment decisions in the UAE. They're particularly interested in understanding preferences: a flat 15% corporate tax versus a top-up tax, the preferred location for paying the top-up tax (UAE or elsewhere), and finally, whether the policy will extend to Free Zone companies.
The UAE's proposed implementation of the global minimum tax likely applies to multinational groups exceeding €750 million in consolidated revenue. It aims to mirror the GloBE Rules with some flexibility. Financial calculations will follow International Financial Reporting Standards (IFRS), and companies with a real economic presence may benefit from Substance-Based Income Exclusions (SBIEs). The UAE is also considering reduced or eliminated domestic minimum tax (QDMTT) for new multinational entrants and aligning payment deadlines with existing tax laws or the GloBE Rules. Public feedback is encouraged on potential reporting requirements and penalties for non-compliance.
To further incentivize investment, the UAE Ministry of Finance (MOF) is exploring additional tax breaks that align with the GloBE Rules. These potential incentives could be structured in two ways: income-based, offering tax exemptions or reductions for multinational enterprises (MNEs) that meet specific criteria, or expenditure-based, providing tax credits, accelerated deductions for depreciation, or tax allowances.
Multinational enterprises (MNEs) with operations in the UAE should carefully consider how the proposed implementation might affect their tax strategy and investment decisions in the region. The UAE's open consultation process demonstrates their commitment to international tax cooperation. By actively seeking public feedback, they aim to create a system that balances global tax standards with considerations for local businesses and investment attractiveness.
