What Is Pillar Two and Why It Matters now in the UAE
Pillar Two, under the OECD’s Inclusive Framework, sets a global minimum tax rate and establishes rules to ensure that large MNEs pay a minimum level of tax in every jurisdiction they operate in. In the UAE, these rules are enforced via the Top-Up Tax, introduced under Cabinet Decision No. 142 of 2024. A recent UAE policy — Ministerial Decision No. 133 of 2026 — clarifies which entities must file a “Pillar Two Information Return.” (mof.gov.ae)
Key Highlights of Decision 133/2026
From financial years starting on or after January 1, 2025, entities in the UAE must submit Pillar Two information if they are:
- a constituent entity located in the UAE, excluding investment entities;
- a joint venture or project joint venture; or
- a hybrid reverse-upper-tier entity as defined under UAE law.
Reporting can be done directly by the entity, or via a designated UAE entity on behalf of eligible non-UAE members. (mof.gov.ae)
Examples
- A software firm headquartered in UAE with subsidiaries globally must file if its global group meets the minimum thresholds.
- A UAE-based joint venture co‐owned by foreign companies would also be required under Decision 133.
- An investment fund structured as an investment entity is excluded, even if part of a multinational group.
Action Steps for Multinational Entities in the UAE
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Assess your group structure Determine if your entity is a constituent entity, joint venture, hybrid entity, or investment entity under UAE legislation.
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Review financial year timing If your fiscal year started on or after 1 January 2025, Decision 133 applies. If earlier, check transitional provisions or exemptions.
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Establish reporting processes Identify which entity can prepare and submit the Information Return; ensure data collection across jurisdictions, especially related to effective tax rate and APAs.
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Align with documentation requirements Make sure you have properly documented the income, expenses, taxes paid, and intercompany transactions to support the figures (e.g. GloBE calculations).
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Consult advice if hybrid or reverse hybrid involved Identifying hybrid features can be legally complex; professional tax planning may be necessary.
Why This Matters Strategically
- Increases tax transparency and aligns the UAE with global minimum tax norms.
- Imposes non-compliance risks such as penalties or reputational damage for MNEs failing to file correctly.
- Provides certainty around Top-Up Tax exposure and reduces surprises in global effective tax rate calculations.
Tips for Global Tax Teams
- Coordinate with finance, legal and compliance units across jurisdictions.
- Use tax software tools capable of Pillar Two calculation and reporting.
- Monitor updates: UAE may issue additional guidance or clarifications, especially on thresholds or reverse hybrid definitions.
Conclusion: Pillar Two is reshaping international tax obligations. UAE’s Ministerial Decision No. 133 of 2026 clarifies who must file a Pillar Two information return and sets rules effective from January 1, 2025. Entities must quickly assess their status and align operations to ensure compliance.