Pillar Two implementation in the UAE | 2025 timeline

On 13 September 2023, during the Organisation for Economic Co-operation and Development (OECD) Regional Forum held in Dubai, the UAE Ministry of Finance (MoF) made an informal announcement that the UAE will defer the implementation of the Global Anti-Base Erosion (Pillar Two) rules until 2025. 

This decision allows more time for businesses to prepare for both Corporate Tax (CT) and Pillar Two. Additionally, it provides the MoF with the opportunity to ensure that they establish the appropriate legal basis and framework for the new rules. A public consultation is also planned for Q1 2024.

Below we discuss the key impacts for businesses operating in the UAE and the main take aways.

For an in-depth understanding of the Pillar Two rules, we invite you to revisit our previous publications.

Key impacts for businesses operating in the UAE

Outbound groups

Considering the implementation timeline announced, UAE profits of Multinational Groups (MNEs) with a UAE-based Ultimate Parent Entity (UPE) will not be subject to top-up tax in 2024. Accordingly, such profits will only be chargeable to tax under the newly introduced UAE CT regime, with a statutory rate of 9%, in 2024. 

While these groups might still have Pillar Two compliance obligations outside the UAE and possibly top-up taxes on non-UAE profits, depending on their group structure/legal footprint, the compliance procedures should be more straight forward. 

Inbound groups

Similarly, from a UAE perspective, UAE profits of UAE entities which are part of non-UAE headquartered MNEs will only be subject to the UAE CT regime in 2024. However, such profits may be subject to top-up tax in the country where the UPE (or an intermediate holding) is located (depending on the status of implementation in that country).

Takeaways

The deferred implementation of Pillar Two is especially welcome for UAE-headquartered MNEs as they continue to navigate the challenges of the introduction of the UAE CT. Further, these groups now have an extended period of time to prepare for the requirements of Pillar Two. This is an opportunity that should be capitalized on. 

We will be discussing the implications of the UAE announcement during the upcoming Deloitte UAE Corporate Tax Conference, taking place in Dubai on Tuesday, 19 September and Abu Dhabi on Thursday, 21 September 2023. To register, please visit the following link.