U.A.E Eyes Global Minimum Tax: Will Big Business Face a Bigger Bite in 2025?

 There have been a few recent developments concerning corporate tax in the UAE:

• UAE Pass for Tax Portal Access: Since late September 2023, the Federal Tax Authority has required the use of the UAE Pass to access the tax portal. This applies to corporate tax, VAT, excise tax, and even filing claims for refunds or appeals. [National News Article on UAE Corporate Tax Updates]
• New Giban for Corporate Tax: Companies registered for corporate tax now have unique Giban (Generated International Bank Account Numbers) specifically for this purpose. These differ from Gibans used for VAT purposes. This aims to streamline corporate tax payment processing. [National News Article on UAE Corporate Tax Updates]
• Implementation of Pillar Two Rules: The UAE is establishing the groundwork to implement the OECD's Pillar Two minimum tax rate of 15% expected to be rolled out in 2025. Public consultation is expected in early 2024. [Clyde & Co - Developments for UAE Family Businesses]

These updates focus on administrative aspects of corporate tax rather than any changes to tax rates or exemptions.

U.A.E -Implementation of Pillar Two Rules

Yes, the UAE is considering implementing the Global Minimum Tax, but with a potential delay. Here's a breakdown of the situation:

• The OECD's Global Minimum Tax, also known as Pillar Two, proposes a minimum corporate tax rate of 15%.
• The UAE currently does not levy a federal corporate income tax, although it introduced a 9% corporate income tax for businesses operating outside of free zones in June 2023.
• In March 2024, the UAE Ministry of Finance held a public consultation to gather feedback on implementing the Pillar Two rules. This suggests they are at least considering it.
• However, the consultation concluded in April 2024, and there haven't been any announcements about a definitive implementation date. Reports suggest the UAE might not implement Pillar Two in 2024 

In summary:

• The UAE is exploring the possibility of implementing the Global Minimum Tax under Pillar Two.
• They held a public consultation in March 2024, indicating serious consideration.
• Implementation seems unlikely for 2024, with 2025 as a potential target year.

It's important to stay updated on official announcements from the UAE Ministry of Finance for the latest developments. 

• Expected Timeline: The UAE is aiming to have Pillar Two in place by 2025.
• Public Consultation: Discussions and consultations with stakeholders regarding the specific implementation details of Pillar Two are anticipated for early 2024. This suggests the UAE government is finalizing the framework.
• Legal Updates: The Ministry of Finance has already amended the Corporate Tax Law to prepare for Pillar Two.

Resources for Further Reading:

• Update on UAE Pillar Two Implementation: [Orbitax Tax News on UAE Pillar Two] (you can search for this by title)
• Analysis of Pillar Two and UAE Free Zones: [Aurifer Tax - Pillar Two and UAE Free Zones]

U.A.E -Implementation of Pillar Two Rules

Pillar Two of the OECD's Global Minimum Tax framework aims to ensure multinational corporations (MNCs) pay a minimum tax rate of 15% globally. Here's a breakdown of the key details:

Core Concept:

• Effective Tax Rate (ETR): This is a calculated tax rate based on a company's profit divided by its tax bill.
• Top-up Tax: If an MNC's ETR in a particular country falls below the 15% minimum, the parent company (or another entity in the group) will be subject to a "top-up tax" to ensure the effective tax rate reaches 15%.

Implementation Mechanisms:

• Qualified Domestic Minimum Top-up Tax Rule: This gives priority to the country where the MNC operates with the low tax rate. This country can impose a top-up tax to ensure the minimum rate is met.
• Income Inclusion Rule (Subject to a Tax Treaty Override): If the top-up tax isn't applied in the low-tax country, the parent company (or another entity in the group) can be taxed on the difference between the subsidiary's profit and the minimum tax rate multiplied by its profit. This essentially forces the group to pay the top-up tax elsewhere.
• Undertaxed Profits Rule: This acts as a backstop. If neither of the above rules are applied, the parent company's country of residence can tax the difference between the minimum rate and the ETR in the low-tax country.

Who is Affected?

• The rules generally apply to large Multinational Enterprises (MNEs) with a consolidated group revenue exceeding EUR 750 million.

Implementation Timeline:

• A global implementation date of 2024 was initially proposed, but this has been pushed back.
• The UAE, like many countries, is targeting implementation by 2025.

Additional Points:

• There are mechanisms to avoid double taxation and ensure the system operates efficiently.
• Public consultations regarding specific implementation details are crucial, and the UAE is expected to hold these consultations in early 2024.

For further information, you can refer to resources like the OECD's documentation on Pillar Two or tax advisory firm publications on the topic.