Taxation

Must-Read for CFOs: UAE’s New Pillar Two Rules and the Global Top-Up Tax

17/04/2025 No comments yet

UAE Adopts OECD’s Pillar Two: A Detailed Guide to the Top-Up Tax

The United Arab Emirates (UAE) is taking a significant step in aligning its tax framework with international standards. Specifically, the UAE has decided to implement the Global Anti-Base Erosion (GloBE) Model Rules. This move is formalized through Ministerial Decision No. (88) of 2025, which provides the commentary and administrative guidance for Cabinet Decision No. (142) of 2024, focusing on the imposition of a top-up tax on multinational enterprises.  

What is the Top-Up Tax?

To begin, it’s crucial to understand the core concept: the top-up tax. In essence, this tax aims to ensure that multinational enterprises pay a minimum level of tax on the income arising in each of the jurisdictions where they operate. This is achieved by “topping up” the tax in a jurisdiction to the minimum rate if the effective tax rate (ETR) falls below that threshold.  

The Role of the OECD

Furthermore, the implementation of the top-up tax in the UAE is closely tied to the work of the Organisation for Economic Co-operation and Development (OECD). The OECD has been at the forefront of developing the GloBE rules under its Base Erosion and Profit Shifting (BEPS) project. These rules form Pillar Two of the OECD’s two-pillar solution to address the tax challenges arising from the digitalization of the economy.  

Key Documents and Guidance

Moreover, Ministerial Decision No. (88) of 2025 adopts several key OECD documents to provide clarity and guidance on implementing the top-up tax in the UAE. These documents include:

  • OECD (2024), Tax Challenges Arising from the Digitalisation of the Economy – Consolidated Commentary to the Global Anti-Base Erosion Model Rules (2023): Inclusive Framework on BEPS, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. This document provides detailed explanations and interpretations of the GloBE rules.  
  • OECD (2024), Tax Challenges Arising from the Digitalisation of the Economy – Administrative Guidance on the Global Anti-Base Erosion Model Rules (Pillar Two), June 2024, OECD/G20 Inclusive Framework on BEPS, OECD, Paris. This offers practical guidance on how to apply the GloBE rules.  
  • OECD (2025), Tax Challenges Arising from the Digitalisation of the Economy – Administrative Guidance on the Global Anti-Base Erosion Model Rules – Central Record, OECD/G20 Inclusive Framework on BEPS, OECD, Paris. This likely serves as a central repository for ongoing guidance and updates.  
  • OECD (2025), Tax Challenges Arising from the Digitalisation of the Economy – Administrative Guidance on Article 8.1.4 and 8.1.5 of the Global Anti-Base Erosion Model Rules (January 2025), OECD/G20 Inclusive Framework on BEPS, OECD, Paris. This provides specific guidance on particular articles within the GloBE rules.  

When Does This Take Effect?

Finally, it is important to note that this decision will be effective from 1 January 2025. Therefore, multinational enterprises with operations in the UAE need to prepare for these changes.  

In Conclusion

In conclusion, the UAE’s adoption of the OECD’s Pillar Two through Ministerial Decision No. (88) of 2025 signifies a major development in its tax policy. This move will bring about greater alignment with global tax standards and impact how multinational enterprises are taxed in the UAE. Businesses must proactively engage with the details of these rules to ensure compliance and optimize their tax strategies.  

Useful Links and References:



Leave a Reply