Who Is Subject to the Top-up Tax?
Applicable to:
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Constituent Entities in the UAE that are part of an MNE group with consolidated revenues of EUR 750 million or more in at least 2 of the last 4 fiscal years.
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Entities include subsidiaries, branches, and permanent establishments.
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Certain entities are excluded, such as governmental entities, non-profits, and investment funds.
📌 Key Definitions in Cabinet Decision 142
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Ultimate Parent Entity (UPE): The entity that controls the group and is not controlled by any other entity.
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Excluded Entities: Includes government bodies, international organizations, non-profits, pension funds, etc.
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Constituent Entity: Any company or establishment that forms part of the MNE Group.
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Top-up Tax Percentage: The difference between the minimum global tax rate and the entity’s effective tax rate.
📊 How Is the Top-up Tax Calculated?
The Top-up Tax =
(Minimum Global Tax Rate – Effective Tax Rate) × Excess Profits
Components:
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Pillar Two Income or Loss: Based on adjusted accounting profits.
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Covered Taxes: Local and foreign corporate taxes paid.
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Deferred Tax Adjustments: Recalculated based on tax rules.
⚙️ Compliance & Filing Obligations
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MNEs must designate a Domestic Filing Entity if opting for group-level filing.
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Financial data must follow IFRS or accepted accounting standards.
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Required to file Top-up Tax Returns and maintain compliance documentation.
🚫 Exemptions & Special Rules
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Income from international shipping may be excluded from tax calculations.
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Rules for flow-through entities, hybrid entities, and sovereign wealth funds are outlined with precision.
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Specific carve-outs apply to payroll and tangible asset values for substance-based income exclusion.
📈 Why This Matters for MNEs in the UAE
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Positions UAE in compliance with global tax standards (BEPS 2.0).
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Reduces reputational risk for MNEs facing scrutiny from international tax authorities.
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Requires proactive tax planning and entity restructuring for high-revenue businesses.
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Cabinet Decision No. 142 of 2024 is a milestone in UAE’s corporate tax policy.
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The UAE Top-up Tax enforces global minimum taxation on qualifying multinational entities.
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Understanding Pillar Two income, Covered Taxes, and Substance-based exclusions is key to compliance.
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Businesses must act before January 1, 2025, to avoid penalties and ensure readiness’s.
