This case study examines the potential application of the Domestic Minimum Top-up Tax (DMTT) in the United Arab Emirates to a Group structured through entities incorporated in the Cayman Islands, the British Virgin Islands (BVI), and the UAE. While the Ultimate Parent Entity (UPE) is incorporated in the Cayman Islands and a subsidiary in the BVI, operational evidence indicates that the Place of Effective Management (PoEM) of both entities is in the UAE. Since both the Cayman Islands and the BVI maintain regimes of general tax exemption, the question arises whether the absence of Covered Taxes in those jurisdictions, combined with PoEM in the UAE, results in all entities being treated as UAE-located for DMTT purposes.
The significance of this determination is decisive:
- If the Cayman and BVI entities are regarded as UAE-located, the Group ceases to meet the definition of an MNE Group, and the DMTT is inapplicable.
- If, however, these entities retain their foreign status, the Group constitutes an MNE Group, and the UAE entities fall within the scope of the DMTT.
This case study proceeds by examining the legal framework, the definition of MNE Group, the residency and tax exemption regimes of Cayman and BVI, and the tie-breaker rules under UAE DMTT Rules, before reaching a conclusion on the Group’s liability to the UAE DMTT.
Facts
The Group comprises UPE, incorporated in the Cayman Islands, and Subsidiaries:
- One incorporated in the BVI and
- One incorporated in the UAE.
Disclosed data indicates that the Place of Effective Management (PoEM) for both the Cayman UPE and the BVI subsidiary is in the UAE.
The Group’s consolidated revenues exceeded EUR 750 million in at least two of the four fiscal years immediately preceding FY 2025.
Question
Is the Group subject to the DMTT under UAE law beginning in FY 2025.
Summary
Upon the analysis below, we concluded that:
- The Group’s exposure to the UAE DMTT hinges entirely on the determination of the Place of Effective Management (PoEM):
- If PoEM of the Cayman and BVI entities is in the UAE, then the Group is domestic-only in nature and does not constitute an MNE Group, making the DMTT inapplicable.
- If PoEM remains in Cayman and BVI, then the Group retains foreign presence, qualifies as an MNE Group, and UAE‑located entities are within scope of the DMTT.
Analysis
- Article 1.1.1 of Cabinet Decision No. 142 of 2023 (UAE DMTT Rules) provides that the DMTT applies to Constituent Entities that are members of an MNE Group. Article 2.1 stipulates that the DMTT obligation is triggered if the Constituent Entity is located in the UAE during the fiscal year. Consequently, the pivotal question becomes whether the Group qualifies as an MNE Group, based on the determination of location, which hinges on residency and Covered Taxes.
- Under Article 1.2 of the UAE DMTT Rules, “an MNE Group means any Group that includes at least one Entity or Permanent Establishment that is not located in the Jurisdiction in which the Ultimate Parent Entity of the MNE Group is located”. Prima facie, this requirement is met: the UPE is Cayman-incorporated, and subsidiaries are in BVI and UAE, indicating “foreign presence”. However, under Article 18.3 and and Article 10.3 of the GLoBE Model Rules, entity location is determined primarily by tax residency, and in the absence of residency, by place of incorporation.
Commentary 10:172 clarifies that “the principle underlying the rules is to follow the treatment under local law. The rules give a priority to tax residence whenever possible. In most cases, an Entity will be a tax resident in a jurisdiction, and that will be its location for the purpose of the GloBE Rules. In the event that there is no tax residence, the location will be the place of creation”.
Commentary 10:173 addresses the cases where “the local law treatment results in an Entity being located in more than one jurisdiction. The GloBE tiebreaker rules follow the result of a tiebreaker that applies under an applicable Tax Treaty. If there is no result from the applicable Tax Treaty, then the Entity is located in the place with higher Covered Taxes or higher Substance (calculated under the Substance-based Income Exclusion), in that order”.
- BVI do not issue Tax Identification Numbers (“TINs”) or equivalent identifiers for tax purposes.[1] However, the Income Tax Act Cap 15.02 (ITA) defines residency for tax purposes ‘in the case of a company, that such company was— (i) incorporated in Saint Lucia, or (ii) if incorporated outside Saint Lucia, was managed and controlled in Saint Lucia’.[2]
Finally, under section 242(1) of the BVI Business Companies Act, BVI companies and associated income are expressly exempt from provisions of the Income Tax Ordinance. Consequently, BVI companies are not subject to Covered Taxes under domestic legislation.
- The Cayman Islands imposes no direct taxation (no income, corporate, capital gains, inheritance, or similar taxes) reflecting a well-known tax-neutral environment.[3] Domestic law does not define tax residence, and thus companies incorporated there “have no residence for tax purposes”.[4]
- Since the PoEM of the Cayman UPE and BVI subsidiary is determined to be in the UAE, all Group entities are located in the UAE.The Group then lacks foreign presence and does not qualify as an MNE Group under Article 1.2. Accordingly, the UAE DMTT does not apply, regardless of met revenue thresholds.
[1] https://www.oecd.org/content/dam/oecd/en/topics/policy-issue-focus/aeoi/british-virgin-islands-tin.pdf
[2] https://www.oecd.org/content/dam/oecd/en/topics/policy-issue-focus/aeoi/saintlucia-residency.pdf
[3] Government of the Cayman Islands – Economy, https://www.gov.ky/economy
[4] OECD, Tax Residency in the Cayman Islands, AEOI Portal, https://www.oecd.org/content/dam/oecd/en/topics/policy-issue-focus/aeoi/cayman_tax_residency.pdf
The disclaimer
Pursuant to the MoF’s press-release issued on 19 May 2023 “a number of posts circulating on social media and other platforms that are issued by private parties, contain inaccurate and unreliable interpretations and analyses of Corporate Tax”.
The Ministry issued a reminder that official sources of information on Federal Taxes in the UAE are the MoF and FTA only. Therefore, analyses that are not based on official publications by the MoF and FTA, or have not been commissioned by them, are unreliable and may contain misleading interpretations of the law. See the full press release here.
You should factor this in when dealing with this article as well. It is not commissioned by the MoF or FTA. The interpretation, conclusions, proposals, surmises, guesswork, etc., it comprises have the status of the author’s opinion only. Furthermore, it is not legal or tax advice. Like any human job, it may contain inaccuracies and mistakes that I have tried my best to avoid. If you find any inaccuracies or errors, please let me know so that I can make corrections.
