Understanding the Global Minimum Tax: What You Need to Know!
Introduction:
The UAE’s Ministry of Finance (MoF) is considering the implementation of a global minimum tax (GMT) and seeks feedback from stakeholders, particularly multinational enterprises (MNEs) operating in the country. Here’s a breakdown of what you need to know about this potential tax reform.
What is the Global Minimum Tax?
The Global Minimum Tax (GMT) targets MNEs with annual revenue above €750 million (nearly Dh3 billion) and ensures they pay a minimum tax of 15% on excess profits earned globally. It aims to create a level playing field and prevent tax disparities among nations.
UAE’s Policy on GMT Implementation:
While the UAE has launched a consultation on implementing the tax, no final policy has been announced. Further details will be provided in due course.
Consultation Questionnaire:
The consultation covers aspects such as GMT implementation, the design of a potential UAE domestic minimum top-up tax, and administration matters.
UAE’s Commitment to the Tax Deal:
The UAE signed the GMT agreement in November 2023 and amended its Corporate Income Tax Law accordingly. However, specific measures may be delayed until 2025.
Companies Affected by GMT in UAE:
The tax applies to any large MNE meeting the criteria, regardless of industry.
Global Implementation of GMT:
Several countries are already implementing minimum tax rates, including Switzerland, Ireland, Luxembourg, and Barbados. Over 40 countries are progressing towards GMT implementation.
Understanding Key Terms:
Income Inclusion Rule (IIR): Ensures profits of MNEs are subject to a minimum tax rate globally.
Undertaxed Profits Rule (UTPR): Acts as a backstop to the IIR, preventing low taxation of profits.
Domestic Minimum Top-Up Tax (DMTT): Allows countries to implement their own minimum tax rules aligned with GMT principles.
Conclusion:
The potential implementation of a global minimum tax in the UAE reflects a broader global effort to address tax disparities and ensure fair contributions from multinational enterprises. Businesses are encouraged to participate in the consultation process to shape future policies.
