UAE’s Ministry of Finance Launches Consultation on Global Minimum Tax Implementation

The UAE’s Ministry of Finance (MoF) has taken a significant step towards tax reform by initiating a digital public consultation on the implementation of a global minimum tax (GMT) in the country. This move aims to gather feedback from relevant stakeholders, particularly multinational enterprises (MNEs) operating in the UAE, to ensure a smooth and effective transition to the new tax regime.

Understanding Global Minimum Tax: The GMT targets MNEs with annual consolidated revenue of €750 million or above, ensuring they pay a minimum tax rate of 15% on excess profits derived from every jurisdiction they operate in. This measure, known as the global anti-base erosion rules or GloBE Rules, aims to prevent tax avoidance and ensure a level playing field in corporate taxation.

Purpose of Consultation: The MoF’s consultation seeks to gather input on various aspects of GMT implementation, including domestic implementation issues, interactions with the UAE’s Corporate Tax (CT) system, and ways to minimize compliance costs. Stakeholders are encouraged to provide feedback on policy options such as the income inclusion rule (IIR), undertaxed profits rule (UTPR), and a domestic minimum top-up tax (DMTT).

Submission Deadline and Process: Relevant stakeholders are required to submit their responses by April 10 through the MoF’s website. The consultation process aims to ensure transparency and inclusivity in decision-making regarding tax reforms.

Expert Insights: Experts have highlighted the significance of the UAE’s move towards aligning with global tax reforms. Farah Mourad, Senior Market Analyst at Equiti Group, emphasized the importance of the GMT in promoting fair corporate taxation and maintaining a level playing field for businesses. Meanwhile, George Khoury, Global Head of Education and Research at CFI, explained key components of the GMT, including the IIR, UTPR, and DMTT.

Implementation Status in the UAE: While the UAE has signed up for the GMT agreement and amended its Corporate Income Tax Law in November 2023, specific measures under the OECD’s Pillar Two rules have been delayed until 2025. The consultation process will provide valuable insights into the UAE’s policy direction on GMT implementation.

Global Trends and Impact: The implementation of minimum tax measures is not unique to the UAE, with several countries, including Ireland, Luxembourg, Switzerland, and Barbados, taking steps to adhere to minimum tax rates. Switzerland, for instance, is considering a constitutional amendment to introduce a minimum corporate tax rate of 15%, reflecting a global shift towards tax reform.

Conclusion: The launch of the MoF’s consultation on GMT implementation marks a significant milestone in the UAE’s efforts to modernize its tax system and align with global standards. By engaging stakeholders in the decision-making process, the UAE aims to ensure a smooth transition to the new tax regime while promoting fairness and transparency in corporate taxation.