The UAE is embarking on a significant step towards global tax reforms by soliciting corporate feedback on implementing a global minimum tax (GMT) within the country. The Ministry of Finance (MoF) has opened a consultation period to gather insights from stakeholders, with a particular emphasis on multinational groups operating in the UAE and their associated entities.
The consultation, which is open to all interested parties, aims to gather feedback on various aspects related to the implementation of the GMT. These include domestic implementation issues, interactions with the UAE’s Corporate Tax (CT) system, strategies to minimize compliance costs, and exploring policy options for potential implementation of key GMT components such as the income inclusion rule (IIR), undertaxed profits rule (UTPR), and domestic minimum top-up tax (DMTT).
Stakeholders are required to submit their responses by April 10 through the MoF’s official website. The ministry has released a guidance paper outlining the GMT’s objectives and mechanisms, providing a framework for stakeholders to understand the proposed tax regime.
What is the Global Minimum Tax?
The GMT is a global initiative targeting multinational enterprises (MNEs) with annual consolidated revenue exceeding €750 million. The primary aim of the GMT is to ensure that these MNEs pay a minimum tax rate of 15% on their profits derived from operations in various jurisdictions. This is achieved through the income inclusion rule and undertaxed profits rule, collectively known as the GloBE Rules, which prevent profit shifting and tax base erosion.
Farah Mourad, a senior market analyst at Equiti Group, explained that the GMT serves as a universal benchmark agreed upon by countries to establish a baseline for corporate taxation. It seeks to promote fairness and create a level playing field for businesses operating across borders, ensuring they contribute their fair share of taxes to the economies they operate in.
UAE’s Approach to Implementing the Global Minimum Tax
The UAE has initiated a digital public consultation process to gather input from relevant stakeholders regarding the implementation of the GMT within its jurisdiction. However, it’s important to note that the consultation document does not represent the final policy position of the UAE and should not be relied upon for making business decisions.
The MoF will announce further details on the implementation of the GMT in the UAE at a later stage. The consultation questionnaire covers various aspects, including GMT implementation, design of a potential domestic minimum top-up tax, and administrative considerations.
Is the UAE a Signatory of the Global Minimum Tax Agreement?
Yes, the UAE signed the GMT agreement in November 2023 and has demonstrated its commitment to global tax reforms by amending its Corporate Income Tax Law. However, specific measures related to the OECD’s Pillar Two rules, including aspects of the GMT, are slated for implementation by 2025.
Which Companies Will be Affected by the GMT in the UAE?
According to George Khoury, global head of education and research at CFI, the GMT is not industry specific. Therefore, any large multinational enterprise meeting the criteria, regardless of industry sector, will be subject to the GMT in the UAE.
In conclusion, the UAE’s Ministry of Finance’s consultation on the implementation of the global minimum tax reflects the country’s commitment to international tax standards and its efforts to align with global tax reforms. The feedback gathered from stakeholders will play a crucial role in shaping the UAE’s approach towards implementing the GMT and ensuring a fair and transparent tax environment for businesses operating within its borders.
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