Understanding the Top-Up Tax and Pillar Two Rules in the UAE
The UAE implemented the Top-Up Tax regime under Cabinet Decision No. 142 of 2024, aligning with the OECD/G20 Inclusive Framework’s Pillar Two (Global Anti-Base Erosion – GloBE) rules. A key component is the Pillar Two Information Return – a mandatory reporting return intended to ensure transparency of multinational enterprises’ effective tax rates, income structure, and tax top-ups across jurisdictions. (mof.gov.ae)
What Ministerial Decision No. 133 of 2026 Introduces
Issued on August 25, 2026, this decision clarifies which entities must file the Pillar Two return. The following are in scope:
- Each Constituent Entity located in the UAE (excluding any Investment Entity)
- Each Joint Venture or JV Subsidiary located in the UAE
- Stateless Constituent Entities that are Reverse Hybrid Entities under UAE law
Also, filing may be done directly by those entities or on their behalf by a Designated Local Entity. And the rule is effective for fiscal years starting on or after 1 January 2025. (mof.gov.ae)
Practical Implications and Actionable Advice
Multinational enterprises operating in the UAE need to take strategic steps now:
- Identify all in-scope entities in your UAE operations: check status as Constituent Entity, JV or reverse hybrid.
- Assess whether to appoint a Designated Local Entity: if certain entities lack capacity or structure, appointing someone locally might be needed.
- Plan financial year alignment: since the effective date is fiscal years beginning on or after 1 Jan 2025, ensure accounting and reporting periods are set accordingly.
- Update your governance & tax reporting controls: internal systems must capture data in line with the OECD template – revenue, tax paid, ETRs, Top-Up Tax, etc.
- Review double tax treaty impacts & permanent establishment status for non-resident or hybrid entities.
Example Scenario
ABC Corp, based across multiple jurisdictions, has a UAE subsidiary (Constituent Entity) plus a JV partly in UAE and has an offshore SPV that is a reverse hybrid. Under Decision No. 133 of 2026:
- ABC Corp must prepare and file a Pillar Two Information Return for the UAE Constituent Entity and JV Subsidiary.
- For the reverse hybrid SPV, file if it is a Stateless Constituent Entity under UAE law.
- If some entities are not well-structured for filing themselves, ABC may appoint a Designated Local Entity to submit on their behalf.
Risks of Non-Compliance
Failing to file on time or omitting required entities can lead to:
- financial penalties under UAE’s Top-Up Tax / Corporate Tax Law;
- difficulties in accessing treaty benefits or credibility with tax authorities;
- reputational risk in investor relations.
Stay Updated
The UAE’s regime is evolving. While this decision clarifies obligation for Pillar Two, additional guidance or template updates may follow. Entities should monitor the Ministry of Finance and Federal Tax Authority for notifications.
Author: NomadicTax Research Team
Read Time: ~7 min