Impact of BEPS 2.0 in the UAE

BEPS 2.0 aims at ensuring a fairer distribution of taxing rights for the jurisdictions where large multinational enterprises (“MNE”)* have activities. It consists of two pillars: 

Pillar I – Profit reallocation

Pillar II – Global minimum tax

UAE Focus:

• UAE is part of the Inclusive Framework (“IF”) on BEPS. Hence, any developments in the BEPS 2.0 project are likely to impact the country. 
• The UAE Ministry of Finance officially announced its support for the initiatives of the OECD to avoid BEPS.
• The UAE does not have a federal Corporate Income Tax (“CIT”) regime. Instead, CIT is determined at the emirate-level. 

What is the impact for Relevant MNEs which has presence in the UAE?

• Regardless of how the UAE might react, profits generated by relevant MNEs in the UAE will still likely be taxed by other countries (e.g., top up tax). 

When is the implementation?

• Based on the Statement of the OECD/G20 IF on BEPS, the two-pillar solution is expected to be effective in 2023. 

What’s next?

Evaluation – Relevant MNEs* should consider key impact areas which include: 

• Potential impact of the global minimum tax rate on intra-group transactions and contracts
• Potential additional costs to the business and pricing considerations for intra-group transactions
• Readiness of the organization to adopt the new rules.