BEPS Pillar Two imposes a 15% global minimum effective tax rate on MNE groups with consolidated global revenue ≥ €750 million. The UAE is implementing a Qualified Domestic Minimum Top-up Tax (QDMTT) to collect the top-up tax domestically before other jurisdictions can. UAE Pillar Two regulations are expected to apply from financial years starting 1 January 2025.
What is BEPS Pillar Two?
BEPS Pillar Two is the OECD/G20 global minimum tax framework, formally known as the Global Anti-Base Erosion (GloBE) Rules. It ensures that MNE groups with consolidated global revenue of €750 million or more pay an effective tax rate (ETR) of at least 15% on profits in every jurisdiction where they operate.
If the ETR in any jurisdiction falls below 15%, a top-up tax is collected — either by the jurisdiction itself (via a QDMTT) or by the parent company’s jurisdiction (via an Income Inclusion Rule, IIR) or another group member’s jurisdiction (via an Undertaxed Profits Rule, UTPR). The goal: no profits escape a minimum 15% effective tax globally.
UAE implementation — QDMTT and timeline
The UAE Ministry of Finance confirmed that Pillar Two will be implemented in the UAE via a Qualified Domestic Minimum Top-up Tax (QDMTT). A QDMTT is the UAE’s domestic version of the 15% top-up — it ensures that UAE-sourced MNE profits are taxed to 15% in the UAE, before any other jurisdiction’s IIR or UTPR can apply.
Implementation is expected for financial years beginning on or after 1 January 2025 for UAE entities in scope. The detailed Cabinet Decision implementing QDMTT was anticipated in 2024–2025. Businesses should monitor official MoF releases for the final regulations and GloBE implementation guidance specific to the UAE.
The UAE’s standard 9% CT rate is below the 15% GloBE minimum. For UAE entities of in-scope MNE groups, the 6-percentage-point gap (15% − 9%) will be collected via QDMTT. QFZPs paying 0% on qualifying income face the full 15% top-up on that income — QFZP status does not exempt from Pillar Two.
GloBE computation basics
The GloBE effective tax rate for each jurisdiction is: GloBE Income (adjusted net income, not exactly IFRS profit) ÷ Covered Taxes (taxes paid or accrued on that income, including deferred tax). If ETR < 15%, the Top-Up Tax = 15% − ETR × GloBE Income.
Key differences between GloBE Income and UAE CT income: (a) GloBE uses a substance-based income exclusion (payroll + tangible asset base) that reduces the income subject to top-up; (b) GloBE excludes certain exempt income that UAE CT also exempts; (c) GloBE uses its own loss computation rules.
GloBE allows a deduction from the top-up base equal to 5% of eligible payroll costs and 5% of net book value of tangible assets in the jurisdiction. UAE entities with significant payroll (professional staff) and tangible assets (equipment, machinery, real estate) can reduce their effective GloBE exposure.
Which UAE entities are in scope?
Pillar Two applies to any entity that is part of an MNE group with consolidated global revenue of €750 million or more in at least two of the four preceding fiscal years. This covers:
- UAE-headquartered MNE groups with global operations and consolidated revenue ≥ €750M
- UAE subsidiaries of foreign MNE groups above the threshold
- UAE holding companies and intermediate holdcos that are part of an in-scope MNE group
- UAE free zone entities — QFZP status provides no exemption from Pillar Two
Is your MNE group affected by Pillar Two in the UAE?
We assess UAE entity ETRs under GloBE rules, model QDMTT exposure, and advise on substance-based income exclusion optimisation.
Frequently asked questions
What is BEPS Pillar Two?
The OECD/G20 Global Anti-Base Erosion (GloBE) rules that impose a 15% global minimum effective tax rate on MNE groups with consolidated global revenue of €750 million or more. If a jurisdiction’s effective tax rate is below 15%, a top-up tax is collected.
Does Pillar Two apply to UAE companies?
Yes, for UAE entities that are members of MNE groups with global revenue ≥ €750 million. The UAE is implementing a QDMTT to collect the top-up tax domestically. UAE entities below €750M consolidated group revenue are not in scope.
What is the UAE's QDMTT?
The Qualified Domestic Minimum Top-up Tax — the UAE’s domestic implementation of Pillar Two. It ensures the top-up tax (15% minus UAE ETR) is collected in the UAE, preventing other jurisdictions from collecting it via IIR or UTPR.
Does UAE CT at 9% satisfy Pillar Two?
No. The UAE’s 9% CT rate is below the 15% GloBE minimum. For in-scope MNE group entities in the UAE, a top-up tax of approximately 6 percentage points (15% − 9%) is expected to apply via QDMTT. QFZPs at 0% face an even larger top-up.
When does Pillar Two apply in the UAE?
The UAE’s Pillar Two QDMTT is expected to apply for financial years beginning on or after 1 January 2025. The detailed Cabinet Decision is anticipated — monitor Ministry of Finance communications for the final implementation date and rules.
What is the Substance-Based Income Exclusion in Pillar Two?
A GloBE deduction from the top-up tax base equal to 5% of eligible payroll costs plus 5% of net book value of tangible assets in the jurisdiction. It reduces the income subject to the 15% minimum, rewarding jurisdictions with genuine economic substance.