On 11 February 2025, the Ministry of Finance (MoF) of the United Arab Emirates (UAE) released Cabinet Decision No. 142 of 2024 on the Imposition of Top-Up Tax on Multinational Enterprises (Cabinet Decision), introducing a Domestic Minimum Top-Up Tax (DMTT) on multinational enterprises (MNEs).
The issuance of the Cabinet Decision aims to ensure that MNEs operating in the UAE pay a minimum tax on profits, aligning with the Organisation for Economic Co-operation and Development (OECD) Pillar Two Model Rules.
Effective Date : The new tax takes effect for fiscal years starting on or after January 1, 2025.
Revenue Threshold : Applies to companies with consolidated annual revenues of €750 million or more over the past four fiscal years.
Top-Up Tax : MNEs that pay taxes below 15% in the UAE will have to pay the top-up tax to reach the required minimum tax rate.of 15%.
Applicability : Constituent entities located in the UAE that are members of an MNE group which has consolidated revenues exceeding EUR 750 million for at least two of the four preceding fiscal years.
investment funds that are UPEs
MNE groups should submit the DMTT return within 15 months after the end of the fiscal year, with an 18-month deadline for the first year.
Top-up tax payments must be made alongside the DMTT return submission.
In addition to the above, certain specified entities must submit the ‘Pillar 2 Information Return’ to the FTA.
The computation must be made using the functional currency of the standalone financial statements. Where two or more standalone financial statements use different functional currencies, an election can be made to use either the presentation currency of the consolidated financial statements of the ultimate parent entity or UAE Dirhams.
Determining the Top-up Tax liability for an MNE Group under UAE’s DMTT Rules: DMTT rules also provide computation methodology for calculating Top-up Tax liability which includes computation of Pillar 2 Income or Loss of each Constituent Entity, Adjusted Covered Taxes for each Constituent Entity, Calculation of the Effective Tax Rate of all Constituent Entity located in UAE. And Determining Top-up Tax by comparing the Effective Tax Rate with Minimum Tax Rate.
Permanent De-Minimis Exclusion Safe Harbor: : The top-up tax for Constituent Entities based in UAE, upon an annual election, will be deemed to be zero if the MNE Group reports average Pillar 2 Revenue of less than EUR 10 million and the average Pillar 2 income of less than EUR 1 million in the UAE..
Transitional CbCR Safe Harbor: During the transition period (i.e., until June 30, 2028), upon specific election, the Top-up Tax of the MNE Group in the UAE shall be deemed to be zero if:
The MNE Group reports total revenue of less than EUR 10 million and a profit (loss) before income tax of less than EUR 1 million in the UAE on its Country-by-Country (CbC) Report; or
The MNE Group has a Simplified Effective Tax Rate equal to or greater than the Transition Rate (16% for Fiscal Years beginning in 2025 and 17% for Fiscal Years beginning in 2026) in the UAE for the Fiscal Year.
The MNE Group’s profit (loss) before income tax in the UAE is equal to or less than the Substance-based Income Exclusion for entities reported in the UAE in the Country-by-Country Report
Initial phase of international activity : Top-up tax for UAE constituent entities is reduced to zero if
the MNE group has entities in no more than six jurisdictions,
the net book value of tangible assets does not exceed €50m (excluding the highest value jurisdiction), and
no ownership interests are held by a parent entity applying the Qualified Income Inclusion. The provision is valid for up to five years, subject to conditions.
The FTA has granted a grace period until March 31, 2025, allowing businesses to update their tax records without penalties. This is a crucial opportunity to ensure compliance and avoid fines of up to AED 15,000 for non-compliance after the deadline.
Corporate Tax filing in the UAE is now a crucial responsibility for all business owners. With the UAE’s corporate tax framework in place, businesses must meet compliance requirements to avoid penalties. As the deadline for Corporate Tax Return filings approaches in the UAE, businesses must ensure they are fully prepared to comply with the new tax regulations.
The company has two option of filing corporate tax return i.e simplified return for Small business relief or normal return.
Simplified tax return filing : The Simplified Tax Return Filing option is designed to support small businesses in the UAE by simplifying the compliance process under the Corporate Tax regime. Businesses opting for this route must elect for Small Business Relief (SBR). Below are the key factors that determine eligibility and benefits:
Revenue Threshold: If the Resident natural or juridical Person’s revenue is AED 3,000,000 or less, it may elect for this relief.
Simplified tax return filing: No need to calculate taxable income or deductible expenses or file a detailed tax return.
Tax Exemption: Businesses electing for SBR will not pay Corporate Tax for the eligible period
Limitations on Tax Losses and Interest Expenditure Relief: Businesses that apply for the SBR can’t carry forward any tax losses or net interest expenditure incurred during the relief period to future tax periods.
Transfer Pricing documentation : The taxable person who opts for small business relief is not required to prepare transfer pricing documents for UAE Corporate Tax purposes. However, the transaction between related parties is required to be at Arm’s Length.
Detailed Tax return : For businesses that do not meet the requirements for SBR or choose not to opt for it, the Detailed Tax Return Filing is the alternative. This option requires submitting a comprehensive report to the tax authority, including:
Preparation and Maintenance of Financial Statements: These must comply with International Financial Reporting Standards (IFRS).
Taxable Income Computation: Businesses need to identify taxable and non-taxable income earned during the tax year, determine allowable deductible expenses, and compute the taxable income after deducting eligible expenses
Identification of Available Reliefs and Exemptions: Companies need to identify any available reliefs and exemptions and make the appropriate elections in their corporate tax return.
Financial Disclosures: Detailed financial information such as the Income Statement, Statement of Financial Position, and Audit Details must be disclosed as part of the filing..
The UAE Ministry of Finance (MoF) issued a public consultation paper on 6 February 2025 regarding the UAE E-Invoicing Data Dictionary. As per the consultation document, this initiative is part of the UAE’s “We the UAE 2031” vision, aimed at enhancing digital infrastructure and tax compliance, aligning with global trends in Digital Reporting Requirements (DRR) and Continuous Transaction Controls (CTC).
Stronger VAT Compliance – Reducing the tax gap and shadow economy.
Greater Transparency – Enhancing audits and digital reporting.
Improved Taxpayer Experience – Streamlining invoicing processes.
and paper usage.
Economic Growth – Supporting data-driven policymaking.
Real-time Reporting – Enables Real-time reporting of data to FTA and MOF.
UAE is introducing a 5 corner Peppol based E-Invoicing system, known as the Decentralized Continuous Transaction Control and Exchange (DCTCE) model. This system will allow businesses to send, receive, and validate invoices in real-time through a secure digital network.
The UAE government will gradually roll out e-invoicing starting Q2 2026. This phased approach allows businesses time to upgrade their systems and align internal processes. Specific compliance deadlines and transition timelines will be announced in due course.
The document outlines the data dictionary applicable to various transactions and is structured based on specific use cases.
Self-Invoicing (for tax invoices and credit notes) Additionally, specific invoicing use cases are
addressed, including:
Review internal invoicing processes and align with the einvoicing standards.
Conduct gap assessment and identify system gaps.
Ensure compliance with new mandatory fields for tax invoices.
integration of accounting system with ASP.
Plan IT and ERP upgrades to align with UAE e-invoicing mandates.
Engage with tax advisors to stay ahead of regulatory changes.
For expert guidance on VAT and e-invoicing compliance, feel free to reach out to us.
The consultation aimed to gather feedback from UAE businesses and e-invoicing service providers on the proposed framework. The objective was to build a shared understanding of the upcoming requirements and help businesses plan for seamless e-invoicing adoption. The deadline for responses was 27 February 2025.
The UAE e-invoicing system introduces more structured data requirements. A standard tax invoice will now contain 50 mandatory fields, with 15 additional fields compared to the current UAE VAT regulations. This ensures greater accuracy, validation, and interoperability between taxpayers and the Federal Tax Authority (FTA).
E-Invoicing requirements apply not only to taxable person, but also all business operating in the UAE regardless of their VAT registration.
Businesses must issue eInvoices in a machine-readable format (encrypted XML document), adhering to the UAE PINT AE specification. This includes multiple mandatory, conditional, and optional data fields to ensure structured reporting.
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