The UAE's Pillar Two Registration Opens

The UAE's Cabinet Decision No. 142 of 2024 introduced Domestic Minimum Top-Up Tax (DMTT) on Multinational Entities (MNEs), aligning with the Organisation for Economic Co-operation and Development (OECD) Pillar Two Model Rules.

A Constituent Entity in the UAE shall be subject to Pillar Two Top-up Tax if it is part of an MNE Group that has annual revenues of EUR 750 million or more in the consolidated financial statements of the Ultimate Parent Entity in at least two of the four fiscal years immediately preceding the tested fiscal year.

The OECD’s Pillar Two tax rules represent one of the most significant shifts in global tax policy in decades. By introducing a global minimum Effective Tax Rate (ETR) of 15%, Pillar Two aims to reduce profit shifting and tax base erosion by ensuring that Multinational Enterprise (MNE) groups pay a minimum level of tax in each jurisdiction where they operate.

As per the provisions introduced in UAE, the entities to which the aforesaid provisions are applicable need to obtain a Pillar 2 registration and file Top-up tax returns (independent and separate of Corporate Tax Registration and return filing).

While the due date to obtain the registration is not yet prescribed, the top-up tax return is to be submitted for the year ending 31 December 2025 on or before 30 June 2027.

Way Forward

MNE groups operating in the UAE should assess whether they will be subject to Pillar Two Top-up Tax provisions in the UAE and, accordingly determine the applicability to obtain the Pillar 2 registration.

Currently, the FTA has not specified a deadline for Pillar Two Top-up Tax registration. However, the registration application requires various information relating to the Constituent Entity in UAE as well as the MNE group and the Ultimate Parent Entity. Accordingly, it is recommended that entities submit their registration applications at the earliest to avoid delays in completing the process.

It is important to note that compliance with Pillar Two Top-up Tax is completely different from compliance under UAE Corporate Tax law. Further, entities claiming safe harbour or transitional relief under UAE’s Domestic Minimum Top-Up Tax (DMTT) rules under are still required to register for Pillar Two Top-up tax.

In view of the aforesaid developments, businesses should immediately start preparing for the following:-

• Assess the applicability of the DMTT provisions in UAE and determine the in-scope entities
• Conduct detailed Pillar 2 assessment for UAE jurisdiction to determine if any transitional provisions or safe-harbour reliefs are available
• Perform Effective Tax Rate (‘ETR’) calculations
• Consider disclosures in Financial Statements including provisional top-up tax liability
• Data Collation for registration and future return filings
• Submit Registration application and applicable returns timely

In conclusion, the introduction of the Pillar Two regime in the UAE marks a significant shift in the tax compliance landscape for multinational groups. Entities should take immediate steps to evaluate their status, determine their registration obligations, and gather the required information to avoid operational delays.

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