UAE Public Consultation on Implementing Global Minimum Tax – Introduction
The Ministry of Finance (MoF) of the United Arab Emirates (UAE) held a public consultation to gather feedback on the implementation of the Global Anti-Base Erosion (GloBE) Model Rules, known as Pillar Two.
This consultation which started on 15 March 2024 and ended on 10 April 2024 aimed to refine the draft policy for applying these international tax rules within the UAE.
Overview of the Public Consultation
The consultation process was designed to collect insights from stakeholders on various aspects of the GloBE Rules implementation.
This includes the potential establishment of the Income Inclusion Rule (IIR), the Undertaxed Profits Rule (UTPR), and a Domestic Minimum Top-up Tax (DMTT).
These discussions are pivotal as they will influence how multinational enterprises (MNEs) with substantial revenues are taxed, ensuring they meet a global minimum tax rate of 15%.
The MoF had provided two main documents for review:
- A questionnaire that covers the implementation details of the GloBE rules, the design of a potential UAE-specific DMTT, administrative processes, and substance-based incentives;
- A guidance paper offering a summary of the GloBE Model Rules, including commentary and administrative guidance to aid understanding and compliance.
Key Features of Pillar Two Implementation
Pillar Two’s Objective
Pillar Two aims to ensure that MNEs with consolidated revenues exceeding EUR 750 million pay a minimum tax rate of 15% in each jurisdiction they operate. This is enforced through two mechanisms:
- Income Inclusion Rule (IIR): Taxes parent entities on income earned by subsidiaries if that income was not sufficiently taxed in the subsidiary’s jurisdiction.
- Undertaxed Profits Rule (UTPR): Applies a top-up tax to the income of a constituent entity if it is taxed below the minimum rate in its jurisdiction.
Design Considerations for the UAE
The public consultation seeks feedback on several critical aspects:
- Interaction with UAE’s Corporate Tax (CIT) System: How the GloBE Rules will mesh with existing CIT regulations.
- Implementation of DMTT: Considering a local tax to top-up to the minimum rate required under the GloBE rules.
- Minimizing Compliance Costs: Strategies to ease the administrative burden on MNEs operating within the UAE.
Treatment of Foreign Partnerships and MNEs:
For foreign entities and partnerships, the rules specify that these entities must be transparent, meaning profits pass through to the partners who are then taxed individually, subject to certain conditions including effective tax information exchange with the UAE.
Considerations and Scope of the GloBE Rules
The consultation clarifies that the GloBE Rules will primarily target large MNEs but provides room for applying these rules to smaller groups based on strategic economic considerations.
The application of these rules is not intended to impose undue burdens on smaller MNEs headquartered in the UAE.
UAE Public Consultation on Global Minimum Tax – Conclusion and Next Steps
The consultation process conclude on 10 April 10, 2024.
Undoubtedly, this was a critical step in adapting the global tax reform initiatives to fit the UAE’s unique economic landscape.
By actively seeking input from stakeholders, the UAE MoF aims to craft a regulatory environment that is fair, competitive, and compliant with international standards.
The feedback gathered will play a substantial role in finalizing the UAE’s approach to implementing the GloBE Rules, potentially affecting a wide range of companies and the overall investment climate.
This initiative reflects the UAE’s proactive stance in aligning with global tax reform efforts while considering the impact on its national economic interests.
Final thoughts
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