On 15 March 2024, the UAE Ministry of Finance (MoF) launched a public consultation to seek feedback on the implementation of the global minimum tax or GloBE Rules approved by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting. The objective of this consultation, which closed on 10 April, is to gather views on the potential policy design options, the interaction of the minimum tax with the UAE's corporate tax and options to minimise compliance costs.
The consultation paper is divided in two parts:
Mayur Mundhada
BDO in United Arab Emirates
The consultation paper is divided in two parts:
- A questionnaire covering GloBE implementation, the design of a potential UAE domestic minimum top-up tax (DMTT), administration matters and substance-based incentives; and
- A guidance paper that sets out the details of the GloBE Rules.
Background
The UAE introduced a domestic corporate tax at a rate of 9% for financial years starting on or after 1 June 2023 (for prior coverage, see the article in the February 2022 issue of Corporate Tax News). When the new tax was announced, the MoF indicated that it was committed to the introduction of a global minimum tax but no details were provided. More recently, it was announced that implementation of the global minimum tax will not take place in the UAE until 2025.Matters covered in the consultation
Broadly, the UAE MoF is considering the implementation of two key interlocking concepts:- Income Inclusion Rule (IIR): Under the IIR, a top-up tax would be paid at the level of the ultimate parent entity in proportion to its ownership interests in entities that have low taxed income; and
- Under Taxed Payment Rule (UTPR): The UTPR would operate as a backstop to the IIR. It would require an adjustment (e.g., the disallowance of a deduction) that increases the tax at the level of the subsidiary. The adjustment would be an amount sufficient to result in the group entities paying their share of the top-up tax remaining after the IIR.
Key proposals in the consultation
- The GloBE Rules would apply to all UAE entities of MNE groups, including establishments operating in the free zones.
- There may be additional tax incentives (compliant with the GloBE Rules) for free zone companies.
- The QDMTT would not apply to domestic groups or MNE groups that are not within the scope of the GloBE Rules (i.e., small MNEs and purely domestic groups).
- The EUR 750 million threshold for inclusion in the GloBE Rules should be adopted rather than an equivalent UAE Dirham threshold.
- International Financial Reporting Standards would be used to compute income or loss (in alignment with the UAE corporate tax regime). A GloBE Information Return would have to be filed with the Federal Tax Authority (FTA) within 18 months after the first fiscal year that an MNE group comes within the scope of the GloBE Rules for the UAE. Filing for subsequent years would be due 15 months after the end of the fiscal year.
- Consideration is being given to the implementation of two separate returns: the GloBE Information Return and another return for the DMTT (potentially linking or combining with the UAE corporate tax return).
- UAE liabilities under the GloBE Rules should be paid annually. This could be aligned with the corporate tax payment date or follow a separate timeline.
Questions raised in the consultation paper
Stakeholders are asked to respond to the following questions:- Would you prefer a 15% corporate tax rate over the IIR?
- Would you prefer to pay top-up tax in the UAE or in another jurisdiction under the IIR or UTPR or QDMTT?
- Do you have any views on amendments or additions to the existing administrative provisions of the UAE corporate tax law to deal with the record-keeping requirements for the QDMTT and GloBE Rules?
- Do you have views on whether the penalties for noncompliance in relation to the GloBE Rules and QDMTT should be aligned with those in the UAE Tax Procedures Law?
Mayur Mundhada
BDO in United Arab Emirates