In keeping with international norms, the UAE keeps fortifying its tax system. In a major step, the Ministry of Finance adopted comprehensive Commentary and Agreed Administrative Guidance to execute Cabinet Decision No. (142) of 2024 on the UAE Introduces Top-Up Tax for Multinational Enterprises (MNEs) in Ministerial Decision No. (88) of 2025.
The UAE’s adherence to the OECD’s Pillar Two regulations, which mandate that big businesses pay a minimum effective tax rate of 15%, is strengthened by this ruling. We discuss the main points of this ruling and its implications for UAE-based companies below.
Background: The UAE Supports International Tax Reforms
A larger global initiative under the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) includes the UAE’s implementation of the Top-Up Tax. The objective is to guarantee equitable taxation across countries and stop MNEs from evading taxes.
Large multinational corporations with yearly revenues over €750 million are subject to the new regulations, which mandate that they pay more tax if their effective tax rate in the UAE is less than 15%.
Ministerial Decision No. 88 of 2025’s key characteristics
- The Top-Up Taxes Legal Foundation
The ruling is supported by a number of UAE legislation, including:
- Corporate Taxation, Federal Decree-Law No. (47) of 2022.
- Cabinet Resolution No. (142) of 2024 (Top-Up Tax Imposition).
- Pillar Two implementation is based on the OECD’s GloBE (Global Anti-Base Erosion) Model Rules.
- Date of Effectiveness
MNEs are now required to adhere to the new tax responsibilities as a result of the laws going into effect on January 1, 2025.
- OECD Guidance Documents Adopted
Six important OECD papers from 2024 to 2025 that offer comprehensive implementation guidance are cited in the decision:
- The applicability of Pillar Two regulations is explained in the Consolidated Commentary on GloBE Model regulations.
- Administrative Guidelines on GloBE (Pillar Two): Describes how to comply.
- Central Record Guidance: Describes the standards for reporting and documenting.
- Specific rules pertaining to income inclusion and tax computations are addressed in the guidance on Articles 8.1.4 and 8.1.5.
- Undertaxed Profits Rule (UTPR) Guidance on Article 9.1.
- GloBE Information Return: Describes the MNE filing requirements.
These papers guarantee a clear framework for the implementation of the Top-Up Tax for both tax authorities and enterprises.
What Implications Does This Have for Global Businesses?
- Adherence to the Minimum Tax
Now, MNEs doing business in the UAE have to determine if their effective tax rate (ETR) is above the 15% cutoff. If not, a Top-Up Tax will be applied to make up the difference.
- More Requirements for Reporting
The GloBE Information Return, which companies are required to produce and submit, contains the following:
- Comprehensive tax and financial information.
- ETR computations by jurisdiction.
- Supporting documentation for tax situations.
- Effect on Tax Preparation
It could be necessary to update pricing practices to comply with GloBE regulations. It is necessary to assess if tax advantages in free zones or other regimes lead to a low ETR. Under the new regulations, group structures might need to be modified to maximize tax efficiency.
- Non-Compliance Penalties
Existing UAE tax regulations impose fines for late files or inaccurate disclosures, even though the ruling makes no mention of penalties. Companies should make sure that reports are accurate and submitted on time.
Next Actions for Companies
MNEs should do the following to get ready for the new requirements:
- Perform a GloBE Impact Assessment to ascertain if the Top-Up Tax is applicable based on ETR and revenue.
- Examine tax and financial data to make sure all jurisdictions are reporting correctly.
- Put Compliance Systems in Place: Use GloBE documentation and calculating tools.
- Consult a tax advisor, such as Mubarak Al Ketbi Chartered Accountants. Consult an expert for advice on complicated clauses (such as Article 8.1.4, UTPR).
Conclusion: Tax Transparency Is Strengthened in the UAE
Ministerial Decision No. 88 of 2025’s implementation of the Top-Up Tax upholds the UAE’s dedication to international tax justice while preserving its competitive business climate.
In addition to increased compliance requirements, MNEs will benefit from increased clarity provided by the OECD’s administrative advice. Under the new regime, proactive planning will be essential to maximizing tax options and minimizing penalties.
Businesses should be informed about any new regulatory changes as the laws go into force and seek expert guidance to manage this changing environment.
