(MENAFN- Khaleej Times) Published: Thursday, March 21, 2024, 6 AM
Last updated: Thursday, May 16, 2024 at 11:20 AM
The UAE Ministry of Finance (MoF) is seeking feedback from businesses on the introduction of a global minimum tax in the country. While the consultation is open to all stakeholders, the MoF is “particularly keen” to hear from the “global community” of multinational corporate groups operating in the UAE, as well as their advisers, service providers and investors.
According to the ministry, the comments submitted will help inform aspects such as domestic implementation issues, including their implication in the UAE corporate tax (CT) regime, ways to minimise compliance costs, and consideration of policy options regarding the potential implementation of the income inclusion rule (IIR), under-taxed profits rule (UTPR) and domestic minimum tax (DMTT).
Interested parties have until April 10 to submit their responses via the ministry’s website.
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Khaleej Times referred to the guidance document released by the ministry and spoke to two experts to understand the tax and its possible implementation in the UAE.
Here’s everything you need to know:
What is the Global Minimum Tax?
According to a guidance document from the Ministry of Finance, the Global Minimum Tax (GMT) targets multinational enterprises (MNEs) with annual consolidated revenues of at least 750 million euros (about 3 billion dirhams). “Broadly speaking, the regime ensures that these MNEs pay a minimum tax of 15% on excess profits derived from all jurisdictions in which they operate through two interlocking rules, the IIR and the UTPR. The two rules are collectively known as the Global Base Erosion Prevention Rules, or GloBE Rules.”
Farah Murad, senior market analyst at Equity Group, said it serves as a global benchmark for corporate tax rates agreed upon by countries, aiming to ensure that multinational companies pay their fair share and maintain a level playing field. “Think of it as an international agreement between countries to prevent huge disparities in the business environment. It’s similar to setting a minimum wage for taxes, ensuring that companies play a role in the society they benefit from, regardless of where they’re located.”
Farah Murad. Photo: Supplied Has the UAE formulated a policy to implement the tax?
At the moment, the Ministry of Finance has launched a digital public consultation on the implementation of the tax in the UAE. However, the document is only intended to “obtain input from relevant stakeholders” and does not reflect the UAE’s final view. “The information contained in this document does not represent the UAE’s final policy position and should not be used or relied upon for making any personal or corporate decision,” the document states.
The UAE will announce details regarding the implementation of the tax “in due course.”
What does the consultation questionnaire cover? The implementation of GMR in the UAE, the design and administration of a potential domestic minimum surcharge tax in the UAE. Substance-based incentives Is the UAE a signatory to any tax treaties?
Farah Murad: Yes. The UAE has signed the GMT Agreement and taken important steps to align with global tax reforms by amending its corporate tax laws in November 2023. However, the implementation of certain measures such as the OECD Pillar 2 rules has been delayed until 2025.
Which businesses in the UAE will be affected by GMT?
George Khoury, CFI’s global head of education and research, said the tax is not industry-specific, therefore any large multinational company that meets the criteria will be subject to the UAE GMT, regardless of industry.
George Cooley. Photo: Supplied Has this tax been introduced anywhere else in the world?
Farah Murad: Yes. The introduction of a minimum tax on corporations has already begun in some countries, especially those that have historically served as tax havens. For example, countries such as Ireland, Luxembourg, Switzerland and Barbados have taken steps to comply with minimum tax rates. Switzerland, previously known for its tolerance towards multinational corporations, is now making major moves to address tax evasion. Swiss voters will decide in June whether to adopt a constitutional amendment that would impose a minimum corporate tax rate of 15%. If approved, the amendment would come into force in 2024 and could significantly change the Swiss tax system. Moreover, globally, more than 40 countries have moved forward to introduce a minimum tax, marking a major shift in international taxation.
What do terms like Income Inclusion Rule (IIR), Undertaxed Profit Rule (UTPR), and Domestic Minimum Tax (DMT) mean?
George Cooley: The IIR, UTPR and DMTT are key elements of global tax reform under the OECD/G-20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS).
The IIR is designed to ensure that MNE profits are taxed at or above the global minimum rate. It requires the parent company of an MNE to pay a surcharge if the profits of its foreign subsidiaries are taxed below a certain minimum rate (currently set at 15 percent). This rule is the primary mechanism for enforcing the global minimum tax rate on MNEs and is similar to the United States’ GILTI (Global Intangible Low-Taxed Income) rule. The UTPR acts as a secondary mechanism and backstop to the IIR. It allows countries to deny tax credits or seek equivalent adjustments for domestic companies that make payments to affiliates in low-tax jurisdictions. The rule ensures that if the IIR does not adequately address the low tax rate on profits, the UTPR can be applied to “top up” taxes up to the agreed minimum rate. The DMTT is a provision that allows countries to implement their own minimum tax rate rules that are aligned with the principles of the global minimum tax. The DMTT takes precedence over the IIR and UTPR, ensuring that any additional tax revenue generated by the surcharge is collected domestically and not sent overseas. This means that if a multinational corporation’s profits are generated in a country with a DMTT, the surcharge will be paid to that country’s government first, before any IIR or UTPR liabilities are taken into account.
See also:
UAE launches digital public consultations on implementation of Global Minimum Tax New corporate tax decision aims to clarify tax benefits for free zone companies UAE: New decisions on tax procedures, penalties and exemptions announced Dubai: Will customers pay more tax after new 20% tax on foreign banks? UAE corporate tax regime aims to make country more competitive Dubai: Sheikh Mohammed announces new 20% annual tax on foreign banks
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