The global tax landscape is shifting, and the UAE is in on it.

As of January 2025, the UAE Cabinet Decision No (142) of 2024 has implemented the Pillar Two, or what is known as the Domestic Minimum Top-up Tax (DMTT). which is applicable for Multinational enterprises operating in the UAE (both headquartered and non-headquartered in the UAE). This gives rise to a new layer of regulation and compliance requirements.

In this post, we break down what Pillar Two really means for businesses in the UAE and how it changes the way we do tax today.

What Is Pillar Two and Why Does It Matter?

Pillar Two is part of the OECD’s global tax reform initiative, a framework designed to ensure that large multinational groups (with global revenues above EUR 750 million) pay at least a 15% minimum tax in every jurisdiction they operate. Typically, Pillar Two operates through mechanisms:

  • Income Inclusion Rule (IIR): requires the parent entity to pay a “top-up” tax if its subsidiaries are taxed below the minimum rate.
  • Undertaxed Profits Rule (UTPR): allows other jurisdictions to collect this top-up tax when the parent’s jurisdiction does not apply the IIR.
  • Domestic Minimum Top-up Tax (DMTT) : a local version of the top-up tax designed to ensure that profits earned in the UAE are effectively taxed at the 15% minimum rate before any foreign jurisdiction can claim the difference.

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Why did the UAE choose to implement only DMTT under Pillar Two?

Instead of depending on the global mechanisms, the United Arab Emirates (UAE) plans to introduce only the DMTT as of now (year ended 2025).

The UAE’s DMTT framework safeguards the country’s domestic tax base by ensuring that foreign jurisdictions cannot impose top-up taxes on the UAE profits of in-scope Constituent Entities under the Pillar Two rules. The UAE authorities will continue to evaluate the DMTT’s implementation and effectiveness and engage with key stakeholders to determine whether introducing an IIR or UTPR may be appropriate in the future. (2025)

The DMTT collected by the UAE follows the OECD’s Pillar Two principles, and hence it is designed to be consistent with the GloBE rules. The parent company does not need to pay an additional top-up tax on the same profits under the IIR. By structuring the DMTT to be QDMTT-compliant, the UAE ensures that taxes collected domestically are recognized internationally, avoiding double taxation while still meeting the global minimum tax requirements.

 

Who Falls Under the Scope of UAE’s DMTT?

DMTT applies to multinational enterprise (MNE) groups with consolidated revenues of €750 million or more in at least two of the four preceding fiscal years.

This includes UAE-parented MNEs, UAE Constituent Entities (CE) and Joint Ventures of an MNE group which contribute to the consolidated financial statements.

The DMTT will be applicable in the financial years starting from 2025. The DMTT Rules specify that in-scope Constituent Entities (CEs) and Joint Ventures (JVs) must submit a Top-up Tax Return to the Federal Tax Authority (FTA) within 15 months after the end of the relevant tax period (or 18 months for the initial transition year). This 15-month filing period is consistent with international practice, and the Top-up Tax payment is due on the same date the return is filed.

It is also important to note that the taxable income for DMTT is calculated on jurisdiction basis (in which the Constituent Entity is established) under OECD’s GloBE Income model. This is different from the method used in calculating taxable income for Corporate Tax and hence they must be filed separately.

 

What are Safe Harbour provisions?

Under the OECD’s Transitional Safe Harbour rules, certain in-scope multinational groups can take advantage of simplified compliance measures during the initial phase of DMTT implementation. These provisions are designed for entities with a low risk of incurring additional top-up tax. The UAE is expected to adopt these global standards, giving eligible MNEs temporary relief from detailed DMTT computations during the transition period.

That said, even when an MNE qualifies for these relief measures and has no DMTT payable, it is still required to register for DMTT and meet all reporting obligations. Moreover, eligibility for safe harbours must be reviewed each year to confirm that the entity continues to meet the necessary conditions for exemption.

 

Final thoughts:

By implementing the OECD’s Pillar Two framework, the UAE reinforces its commitment to global tax transparency while maintaining its reputation as a competitive and investment-friendly jurisdiction. For multinational enterprises, this development introduces a new layer of compliance — one that requires proactive planning, precise reporting, and a solid understanding of how global minimum tax principles align with local UAE regulations.

At HallMark International Auditors, we support businesses in navigating this evolving tax environment with confidence. Our experts offer tailored advice on DMTT preparedness, compliance frameworks, and international tax planning to ensure your organization remains fully aligned with both UAE and global standards.

 

FAQ:

Q1: What is the main purpose of the DMTT?
To ensure the UAE profits of large multinational groups are taxed at the global minimum rate of 15% before any foreign jurisdiction can impose a top-up tax.

Q2: Who needs to comply with the UAE’s DMTT?
All multinational enterprise (MNE) groups with consolidated revenues of €750 million or more in at least two of the last four years.

Q3: Will smaller UAE businesses be affected?
No. Entities below the threshold remain subject to the 9% Corporate Tax regime and not in the scope of DMTT.

Q4: When does the DMTT come into effect?
The first applicable financial year is 2025.

Q5: Is computation for taxable income under DMTT and CT the same?
No. Taxable income under DMTT is computed following the OECD’s GloBE Income model while Corporate Tax follows IFRS standards.

Q6: By when should the filing and payment for DMTT be done?

The filing and payment deadline for DMTT is within 15 months after the end of the financial year (18 months for the initial transitional year).

Q7: Since UAE does not adopt IIR, will UAE profits that are subject to the Domestic Minimum Top-up Tax (DMTT) be taxed again under the parent company’s Income Inclusion Rule (IIR)?

No. Once UAE profits are subject to a Qualified DMTT at the 15% minimum rate, those profits are not subject to additional top-up tax under the IIR in the parent company’s jurisdiction. The UAE’s DMTT aligns with the OECD Pillar Two framework, preventing double taxation on the same profits.

O8: Do Safe Harbour companies need to register for DMTT in UAE?

Yes. Safe Harbour relief does not exempt a company from DMTT registration. All in-scope multinational groups must register with the UAE Federal Tax Authority, even if no top-up tax is payable.