UAE Domestic Minimum Top-up Tax Rules for Minority-Owned Sub-Groups

Definition of MOSG under the UAE DMTT Rules

According to Article 11 of the UAE DMTT rules, a Minority-Owned Sub-Group consists of entities where the UPE owns less than 30% but are still part of the MNE Group. The effective tax rate (ETR) and top-up tax calculations for MOSGs are determined separately from the rest of the MNE Group.

If the ETR of the UAE entities within an MOSG is below 15%, the DMTT applies locally to collect the necessary top-up tax before other jurisdictions impose the Income Inclusion Rule (IIR) or the Undertaxed Profits Rule (UTPR).

MOSG rules result in seclusion of the MOSG income earned and pertinent tax from the calculation of the jurisdictional ETR. Instead, Emirati DMTT for the MOSG will be calculated separately. As a result, an MNE Group may be required to compute multiple ETRs within the same jurisdiction, distinguishing between the MOSG and other Constituent Entities.

Example 1: Exclusion from Blending

Facts

A multinational structure includes:

1)          A foreign UPE, which owns less than 30% of a Singapore holding company.

2)          The Singapore holding company, which owns a controlling interest (above 50%) in two UAE subsidiaries (UAE SubCo 1 & UAE SubCo 2).

3)          The foreign UPE also holds a direct ownership stake in these UAE SubCos (but less than 30% in total, ensuring that they remain part of the MOSG).

4)          Separately, the UPE owns two other UAE entities directly, each with an ownership interest exceeding 30%, meaning these entities are not part of the MOSG but remain included in the broader UAE jurisdictional ETR calculation.

The objective is to illustrate how DMTT is computed differently under two scenarios:

• Without MOSG Rules (Blended ETR Calculation)
• With MOSG Rules (Separate MOSG Treatment Under DMTT)

Analysis

Blended ETR Calculation (If MOSG Rules Do Not Apply)

• Total UAE net incomes (Including MOSG): EUR 1,700 million
• Total Taxes Paid: EUR 260 million
• Blended ETR: 15.3%
• All UAE entities are grouped together, diluting the impact of low-taxed entities (MOSG) with higher-taxed entities.

In this example the MOSG’s standalone ETR (19.33%) is higher than 15% threshold, eliminating the top-up tax liability for MOSG’s Constituent Entities.

Now, let’s determine the top-up tax position for the rest of the Emirati Constituent Entities separately from the MOSG members.

Since the non-MOSG ETR (12.1%) is below 15%, these entities must pay DMTT to bring their ETR up to 15%:

€ 950 million * (15%-12,1%) = € 27,5 million.

This example demonstrates that Ignoring MOSG rules (blending ETRs) eliminates DMTT liability because the blended ETR exceeds 15%. Applying MOSG rules forces low-taxed non-MOSG entities to pay DMTT, increasing total tax liability.

Can Separate ETR Calculation Be Above 15% While Blended ETR is Below 15%?

In principle, it appears impossible for the separate ETR (for both MOSG and non-MOSG entities) to be above 15% while the blended ETR remains below 15%. The blended ETR is calculated as:

which is simply the weighted average of the separate ETRs for MOSG and non-MOSG groups. If both MOSG ETR and non-MOSG ETR are above 15%, then their weighted average (blended ETR) must also be above 15%. In other words, if both components exceed 15%, their combination cannot be below 15%—it must also be at least 15%.

Example 2: Minority Ownership with Control and Without It

Facts.

UK Company (UPE) owns 20% of Emirati Company (UAE Parent) and the latter owns 90% of another Emirati Company (UAE SubCo). UK UPE owns 10% of UAE Co directly. On balance, UPE holds 20% ownership interest in UAE Parent and 28% of the ownership interest in UAE SubCo (10% of the direct ownership and 28% of the indirect one).

The aggregated revenues of the UK UBO, UAE Parent and UAE SubCo are above € 750M threshold, so as standalone revenues of UK UBO. Aggregated revenues of the Emirati Parent and SubCo (not augmented by revenues of UK UPE) are below this threshold.

Analysis.

The 30% indicator is in place. However, it is not enough to include Emirati entities into DMTT scope. Article 2.1(a) charges members of the Minority-owned Subgroup (MOSG) only if they are ‘Constituent Entities located in the UAE during that FiscalYear’. Constituent Entity (CE) defined in Article 1.3.1(a) as ‘any Entity that is included in a Group’. Under Article 1.2.2 ‘a Group means a collection of Entities that are related through ownership or control such that the assets, liabilities, income, expenses and cash flows of those Entities: … are included in the Consolidated Financial Statements of the UPE…’. Consolidated FS is defined as “the financial statements prepared by an Entity in accordance with an Acceptable Financial Accounting

Standard, in which the assets, liabilities, income, expenses and cash flows of that Entity and the Entities in which it has a Controlling Interest are presented as those of a single economic unit”. Finally, Controlling interest ‘Controlling Interest means an Ownership Interest in an Entity such that the interest holder:

(a) is required to consolidate the assets, liabilities, income, expenses and cash flows of the Entity on a line by line basis in accordance with an Acceptable Financial Accounting Standard; or

(b) would have been required to consolidate the assets, liabilities, income, expenses and cash flows of the Entity on a line-by-line basis if the interest holder had prepared Consolidated Financial Statements’.

Paragraph 2(a) of the IFRS 10, which is one of the Acceptable Accounting Standard, ‘requires an entity (the parent) that controls one or more other entities (subsidiaries) to present consolidated financial statements’. Therefore, minority owned entity can be included in the consolidated financial statement only when the parent (UPE) controls this entity in spite of the minority ownership.

In the example at hand, this means that if the UK UPE does have enough control over Emirati entities in spite of its minority ownership therein, consolidated statement is required and Emirati Entities fall within the scope of Emirati DMTT. If not, they do not fall within the scope of Pillar 2 unless they are a part of some other MNE Group with consolidated revenue exceeding 750M threshold.

Example 3: Minority Ownership and Control

Facts

A Japan-based multinational corporation (US UPE) owns 25% of a UAE holding company (UAE HoldCo). The remaining 75% is owned by a UAE investor. Despite the minority interest, Japanese UPE has sufficient control over UAE SubCo to consolidate its financial statements.

The UAEHoldCo together with its Emirati subsidiaries has an ETR below 15%.

Analysis

Under Article 2.1(a) of the UAE DMTT rules, the UAE subsidiary qualifies as part of a Minority-Owned Sub-Group (MOSG) because the Japanese UPE owns 30% or less of the entity but maintains control.

The UAE entity falls below the 15% ETR threshold, making it subject to DMTT in the UAE.

Since the UAE imposes DMTT on the UAE subsidiary’s undertaxed income, the Japanese UPE cannot apply the IIR on this income. This prevents Japan from collecting tax revenue on UAE earnings, thereby maintaining UAE’s tax sovereignty.

Example 4: No Application of MOSG Rules – Full Entity-Level DMTT

Facts

A European Family Investment Fund (FIF), structured to manage the wealth of a single family, owns 25% of a UAE-based holding company (UAE HoldCo).

The UAE Holding Company owns multiple subsidiaries in low-tax jurisdictions (e.g., Bahrain, Cayman Islands, or UAE Free Zones with 0% Corporate Tax).

Analysis

Under Pillar Two rules, the inclusion of entities within the same accounting consolidation is a key factor in determining whether they are part of an MNE Group and whether their financial results are aggregated for testing the revenue threshold and calculating top-up taxes. For an investment fund, the optimal outcome is typically to qualify as an Excluded Investment Fund (EIF) under Pillar Two, which would exempt it from the rules. However, if a fund remains outside the consolidation scope, it may still be subject to Pillar Two unless it qualifies for an exclusion.

Under Article 18.1 of the UAE DMTT Rules, an Investment Fund must be ‘designed to pool assets … from a number of investors (some of which are not connected’ to qualify as an Excluded Investment Fund (EIF). A Family Investment Fund (FIF) fails this requirement because:

• it exclusively serves a single family or a small group of connected investors;
• it does not pool capital from unrelated investors.

Since the FIF does not qualify as an EIF, its UAE holding company also fails to qualify as an Investment Entity and doesn’t fall under exemption provided by Article 2.3 of the UAE DMTT rules.

Because neither the Family Investment Fund nor its UAE Holding Company meets the exclusion criteria, the UAE holding company remains subject to GloBE rules.

However, MOSG rules do not apply in this scenario because The FIF does not consolidate the UAE Holding Company, meaning it does not exercise control over it. This is where a key difference from example 3 where the Japanese  UPE consolidates the UAE HoldCo, making it part of an MOSG, leading to a separate ETR calculation for the MOSG. In contrast, in Example 4, MOSG rules do not apply since the FIF does not consolidate UAE HoldCo.

For UAE HoldCo, this means that there would be no standalone ETR Calculation for UAE HoldCo. Since UAE HoldCo is not part of an MOSG, it does not have a separate ETR calculation. Instead, 100% of its income is subject to UAE DMTT.

Implications for Businesses and Tax Planning

Foreign investors with minority stakes in UAE companies must assess their DMTT exposure. A minority stake does not shield an entity from UAE DMTT if the entity’s ETR is below 15%, as DMTT applies at the entity level regardless of ownership structure.

MNE Groups should calculate ETR separately for MOSGs to ensure compliance and prevent tax liabilities in multiple jurisdictions.

UAE Free Zones offering 0% tax may become subject to DMTT if foreign minority investors hold shares in entities with low-tax structures. Hence:

• The companies operating under Minority-Owned Sub-Groups in the UAE should evaluate their ETR calculations, consider the implications of DMTT, and ensure compliance with the new UAE regulations to avoid tax surprises in 2025 and beyond.
• Businesses should explore tax optimization strategies under the UAE’s QDMTT framework to mitigate unnecessary tax burdens.

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.