How Does UAE Pillar Two Tax Affect Multinational Groups?

The introduction of the UAE Domestic Minimum Top-up Tax (DMTT) marks an important development in the country's corporate tax framework. Multinational groups operating in the UAE must now consider whether their international income is subject to the global minimum effective tax rate of 15%.

The UAE introduced its Domestic Minimum Top-up Tax for financial years starting on or after 1 January 2025. This measure is aligned with the OECD's Pillar Two framework and is designed to ensure that large multinational enterprise (MNE) groups pay a minimum effective tax rate in each jurisdiction where they operate.

For multinational businesses with UAE subsidiaries, branches or other constituent entities, understanding these rules is essential for tax planning, reporting and compliance.

1. What Is Pillar Two Tax?

Pillar Two is part of the OECD/G20 international tax reform initiative designed to reduce tax competition between countries and prevent large multinational businesses from shifting profits to low-tax jurisdictions.

Under this framework, qualifying multinational groups are generally expected to pay a minimum effective tax rate of 15% in each jurisdiction where they operate.

If a group's effective tax rate in a particular country falls below 15%, a top-up tax may apply to bring the rate up to the required minimum, subject to the detailed Pillar Two calculation rules.

For the UAE, the framework is implemented through the Domestic Minimum Top-up Tax (DMTT), also referred to as the Qualified Domestic Minimum Top-up Tax (QDMTT).

United Arab Emirates+1

2. Which Multinational Groups Are Affected?

The UAE Pillar Two rules generally apply to constituent entities that are members of multinational enterprise groups meeting the global revenue threshold.

A multinational group falls within the revenue threshold if its ultimate parent entity reports annual consolidated revenue of at least €750 million in at least two of the four financial years immediately preceding the relevant financial year.

For example, consider an international group with its headquarters in Europe and subsidiaries in the UAE, Saudi Arabia and India.

If the group meets the revenue threshold, its UAE constituent entities may fall within the scope of the UAE DMTT.

However, the rules do not apply automatically to every international company. The group's structure, revenue history, entity classification and applicable exclusions must be reviewed.

An important distinction is that groups operating exclusively within the UAE are outside the scope of the UAE DMTT, regardless of their revenue.

3. How Does the UAE 15% Minimum Tax Work?

The UAE's standard corporate tax framework generally applies a 9% rate to taxable income above the applicable AED 375,000 threshold.

However, large multinational groups covered by Pillar Two must also consider the 15% minimum effective tax requirement.

The DMTT is not simply an additional 6% tax on every UAE company's accounting profit. The effective tax rate is calculated using specific GloBE rules, which include adjustments to financial accounting income and covered taxes.

Where the calculated UAE effective tax rate is below 15%, a top-up tax may become payable.

Example:

Imagine a multinational group has a UAE constituent entity with the following simplified figures:

The difference between the illustrative effective tax rate and the minimum rate is 6 percentage points.

This indicates a potential top-up tax exposure. However, the actual liability must be calculated under the Pillar Two rules, including applicable adjustments, exclusions and the substance-based income exclusion.

The example is for explanation only and does not represent an actual tax assessment.

4. What Is the Impact on UAE Free Zone Companies?

UAE free zone companies that are part of large multinational groups should pay particular attention to Pillar Two.

Some Qualifying Free Zone Persons may benefit from a 0% corporate tax rate on qualifying income under the UAE Corporate Tax Law. However, this preferential rate does not automatically remove them from the Pillar Two framework.

If a free zone entity belongs to an in-scope multinational group, its income and covered taxes may need to be included in the group's jurisdictional effective tax rate calculation.

Consequently, a group may face a UAE top-up tax liability even if a free zone entity benefits from a preferential corporate tax treatment.

Multinational groups should therefore review their free zone structures, qualifying income, tax incentives and potential top-up tax exposure together.

5. What Are the Important UAE Pillar Two Compliance Requirements in 2026?

The UAE's Pillar Two framework has developed further during 2026, with new guidance and reporting requirements.

A. New FTA scope and registration guide

On 7 October 2026, the Federal Tax Authority issued a new guide covering the scope and registration requirements for multinational groups subject to top-up tax.

The guide explains how businesses can determine whether they fall within the rules. It also covers the treatment of:

• Permanent establishments

• Joint ventures and joint venture subsidiaries

• Flow-through entities

• Hybrid entities

• Different types of constituent entities

It also provides guidance on registration procedures and Pillar Two Information Return requirements.

B. Registration and deregistration requirements

The FTA has introduced Decision No. 12 of 2026 concerning registration and deregistration timelines for entities subject to the top-up tax framework.

Multinational groups should identify which UAE entities need to register and review the applicable deadlines.

They should also consider whether a designated local entity can coordinate the relevant compliance obligations for the group.

C. Pillar Two Information Return

The UAE has also introduced specific reporting requirements through Ministerial Decision No. 133 of 2026, issued on 25 August 2026.

Under this decision, the following entities are required to file a Pillar Two Information Return with the FTA, subject to the applicable rules:

• Each UAE-located constituent entity, excluding investment entities.

• UAE-located joint ventures and joint venture subsidiaries.

• Certain stateless constituent entities that are reverse hybrid entities created under UAE law.

The return may be submitted directly by the relevant entity or by a designated local entity on its behalf.

These requirements apply to financial years beginning on or after 1 January 2025.

6. Does the UAE Apply the Income Inclusion Rule?

The UAE Ministry of Finance has clarified that the UAE has not implemented the Income Inclusion Rule (IIR) at this stage.

Instead, the UAE introduced the Domestic Minimum Top-up Tax to protect its domestic tax base and allow the UAE to collect the applicable top-up tax on profits generated by in-scope UAE constituent entities.

The Ministry of Finance has indicated that it will continue monitoring international developments and may assess whether an IIR should be introduced in the future.

This distinction is important for multinational groups with parent companies and subsidiaries across several jurisdictions. They should review how the UAE DMTT interacts with the tax rules in other countries where the group operates.

7. How Can Multinational Groups Prepare for Pillar Two?

Multinational groups should take a structured approach to assess their potential exposure and meet their reporting obligations.

Here are six practical steps:

1. Review the global revenue threshold

Check the group's consolidated financial statements for the four preceding financial years to determine whether the €750 million threshold has been met in at least two years.

2. Identify UAE constituent entities

Prepare a complete list of UAE subsidiaries, branches, permanent establishments, joint ventures and other relevant entities.

3. Calculate the effective tax rate

Review the group's UAE income and covered taxes under the GloBE calculation methodology rather than relying only on the standard corporate tax rate.

4. Review available exclusions

Assess whether the group qualifies for any applicable exclusions, including the de minimis exclusion and substance-based income exclusion.

5. Organise reporting and registration

Identify the entities responsible for registration and filing the Pillar Two Information Return. Consider whether a designated local entity can coordinate submissions.

6. Maintain supporting financial records

Keep accounting information, tax calculations, entity structures and supporting documents organised to help demonstrate compliance with the relevant requirements.

Early preparation can help multinational groups identify tax exposure, improve reporting accuracy and reduce the risk of compliance issues.

8. How Can Young & Right Support Multinational Groups?

Pillar Two compliance requires coordination between tax, finance and accounting teams across different jurisdictions.

For multinational groups operating in the UAE, professional support can help simplify the assessment process and identify potential compliance risks.

Young & Right can support businesses with corporate tax advisory and related compliance services, including:

• Reviewing UAE corporate tax positions.

• Assessing multinational group structures.

• Supporting corporate tax compliance and reporting.

• Reviewing financial and accounting information.

• Identifying potential tax risks.

• Providing guidance on UAE tax requirements.

Businesses that may fall within the Pillar Two framework should seek an assessment based on their group structure, financial statements and applicable UAE legislation.

Conclusion

The introduction of UAE Pillar Two tax represents a significant change for large multinational groups operating in the country. With the 15% minimum effective tax framework, businesses must review their international structures, UAE tax positions and financial reporting processes.

The additional FTA guidance and reporting developments during 2026 make it increasingly important for multinational groups to understand their registration, calculation and filing obligations.

By reviewing their tax exposure early and obtaining appropriate professional support, businesses can improve compliance and prepare for the evolving UAE international tax environment.