The Pillar Two top-up tax is a separate tax on multinational groups whose effective tax rate in the UAE falls below 15%. It is imposed by Cabinet Decision No. 142 of 2024, which was issued on 31 December 2024 and applies to fiscal years beginning on or after 1 January 2025, and it reaches only groups whose Ultimate Parent Entity reported annual revenue of EUR 750 million or more in at least two of the four fiscal years immediately preceding the tested year. For a group inside that scope, the corporate tax rate of 9% is one input into the calculation, not the outcome of it.
What the Top-up Tax is and which groups it reaches
The scope test is a group test, not an entity test. Cabinet Decision No. 142 of 2024 applies to Constituent Entities of an MNE Group with revenue of EUR 750 million or more in the Ultimate Parent Entity’s consolidated statements, in at least two of the four fiscal years before the tested year (per Cabinet Decision No. 142 of 2024, Article 1.1, as published in the Official Gazette, as of 7 August 2026).
An MNE Group means a group that includes at least one Entity or Permanent Establishment not located in the jurisdiction of the Ultimate Parent Entity. Where a fiscal year taken into account for the threshold covers a period other than twelve months, the EUR 750 million figure is adjusted proportionally to the length of that year. A Constituent Entity is any entity included in a group, and any Permanent Establishment of a main entity that is itself a Constituent Entity; the Permanent Establishment is treated as separate from the main entity for this purpose.
A UAE subsidiary of a large foreign group is therefore inside the scope on the strength of its parent’s consolidated revenue, regardless of its own size. A UAE-headquartered group with foreign operations is inside on the same basis. A purely domestic UAE group, however large, is outside it, because the definition of an MNE Group requires at least one entity or establishment outside the jurisdiction of the parent.
The decision also removes a defined set of entities from the count. An Excluded Entity under Article 1.5 is not a Constituent Entity, and the list runs to governmental entities and the categories the decision enumerates alongside them. Article 1.6 deals separately with sovereign wealth funds: a fund meeting the definition of a Governmental Entity is not an Ultimate Parent Entity, and where it holds a direct controlling interest in an entity, that entity is treated as the Ultimate Parent Entity of the group instead. A filing entity may also elect not to treat an entity as an Excluded Entity, an election the decision fixes for five years.
Why the 9% corporate tax rate does not settle the question
Corporate tax and the Top-up Tax measure different things. Corporate tax applies at its own rate to a taxable person’s taxable income. The Top-up Tax works from an effective tax rate computed for the UAE as a whole, and imposes a charge where that rate falls below the Minimum Rate, which Cabinet Decision No. 142 of 2024 defines as fifteen percent (per Cabinet Decision No. 142 of 2024, definitions, as of 7 August 2026).
The consequence is that reliefs which reduce corporate tax do not reduce the group’s exposure; they can create it. A rate below the Minimum Rate in the UAE, whatever its source — a free zone regime, a relief, a timing difference — widens the percentage point gap that the Top-up Tax is designed to close. The obligation has not been repealed by any exemption; it has moved to a different tax with its own base.
Symbol Consulting treats the interaction between a specific relief and the effective tax rate calculation as a matter to confirm against the text of the decision and the group’s own consolidated figures, rather than to infer from the headline rate. The decision reproduces the OECD model rules with the same citation references, so the arithmetic is not UAE-specific even where the reliefs are.
How the Pillar Two effective tax rate and the top-up are computed
The calculation runs in four movements. First, the Pillar Two Income or Loss of each UAE Constituent Entity is derived from its financial accounting net income, adjusted for the items in Article 3.2. Second, those figures aggregate to a Net Pillar Two Income for the UAE. Third, an effective tax rate is computed for the jurisdiction. Fourth, the Top-up Tax Percentage is the positive percentage point difference between the Minimum Rate and that rate.
The charge is then applied not to the whole of the income but to an Excess Profit. The decision states the relationship directly: the Excess Profit equals the Net Pillar Two Income less the Substance-based Income Exclusion. The Top-up Tax for the fiscal year is the Top-up Tax Percentage applied to that Excess Profit, plus any Additional Current Top-up Tax arising under Article 4.1.5 or Article 5.4.1.
Two features of this sequence matter for a group planning its UAE footprint. The rate is measured for the jurisdiction, so a single low-taxed entity is diluted by higher-taxed ones in the same country and the reverse is equally true. And the base is a residual: the more substance a group has in the UAE, the smaller the amount left to be taxed after the exclusion, even where the effective tax rate itself does not move.
A separate mechanism catches years in which the covered taxes recorded for the UAE fall short of what the income implies. Article 4.1.5 compares the adjusted covered taxes for the jurisdiction with an Expected Adjusted Covered Taxes Amount, which the decision defines as the Pillar Two Income or Loss for the UAE multiplied by the Minimum Rate. Where the recorded amount is lower, the difference is treated as Additional Current Top-up Tax arising in the current fiscal year. A filing entity may elect instead to carry forward the excess negative tax expense, which must then be used in all subsequent computations of the jurisdictional effective tax rate.
The substance-based income exclusion, and the rates that change every year
The exclusion has two components and both are proportions, not fixed amounts. The payroll carve-out is 5% of a Constituent Entity’s Eligible Payroll Costs for Eligible Employees performing activities for the group in the UAE. The tangible asset carve-out is 5% of the carrying value of Eligible Tangible Assets in the UAE: property, plant and equipment, natural resources, a lessee’s right of use of tangible assets, and certain government licences.
Both carve-outs exclude specific items. Payroll costs capitalised into the carrying value of eligible tangible assets are excluded from the payroll carve-out, as are costs attributable to international shipping income excluded from the Pillar Two computation. The tangible asset carve-out excludes property held for sale, lease or investment, and assets used to generate international shipping income. A filing entity may make an annual election not to apply the exclusion at all.
The 5% figures are not the ones in force. Article 9.2 of the decision replaces them with a declining schedule for fiscal years beginning between 2025 and 2032 (per Cabinet Decision No. 142 of 2024, Article 9.2, as of 7 August 2026).
| Fiscal year beginning in | Payroll carve-out rate | Tangible asset carve-out rate |
|---|---|---|
| 2025 | 9.6% | 7.6% |
| 2026 | 9.4% | 7.4% |
| 2027 | 9.2% | 7.2% |
| 2028 | 9.0% | 7.0% |
| 2029 | 8.2% | 6.6% |
| 2030 | 7.4% | 6.2% |
| 2031 | 6.6% | 5.8% |
| 2032 | 5.8% | 5.4% |
The two schedules are not variants of one number; they are two separate rules that happen to converge on 5%. A group with heavy payroll and light assets in the UAE loses exclusion faster in absolute terms than one with the opposite profile, because the payroll rate falls by 3.8 percentage points across the schedule while the asset rate falls by 2.2.
The exits: de minimis, the initial phase, and the safe harbours
Three provisions can reduce the Top-up Tax to zero without touching the effective tax rate. The de minimis exclusion in Article 5.5 is an annual election available where the Average Pillar Two Revenue for the UAE is below EUR 10 million and the Average Pillar Two Income or Loss is a loss or below EUR 1 million. Both averages run over the current and the two preceding fiscal years.
Article 9.3 reduces the Top-up Tax to zero during the initial phase of a group’s international activity, subject to conditions on where the ownership interests of the UAE entities are held. The decision also provides simplified calculations for Non-Material Constituent Entities, under which revenue, income and covered taxes may be taken from figures determined in accordance with the relevant country-by-country reporting regulations rather than recomputed.
EY reads the relief architecture the same way, describing transitional country-by-country reporting safe harbours alongside permanent simplified-calculation safe harbours for qualifying entities (per EY, tax alert of 18 February 2025, as of 7 August 2026). None of these provisions removes the group from scope; each removes or reduces a charge within it, which is why the registration obligation runs separately from the liability.
One further consequence follows from the jurisdictional design. Because the effective tax rate is computed for the UAE as a whole, a group that restructures between UAE entities without changing the total covered taxes or the total Pillar Two income changes nothing in the calculation. What does change it is the amount of eligible payroll and eligible tangible assets located in the country, since those feed the exclusion rather than the rate. The decision therefore rewards physical presence in a way the corporate tax rate does not.
What is filed, by whom and when
Every Constituent Entity, Joint Venture and JV Subsidiary located in the UAE files a Top-up Tax Return with the Federal Tax Authority. Article 8.1 allows the return to be filed by the entity itself or by a Domestic Designated Filing Entity on its behalf, and requires it to carry the equivalent information and reporting requirements set out in the Pillar Two Information Return.
Two deadlines apply, and the longer one is available once. The return is due no later than 15 months after the last day of the Reporting Fiscal Year, or 18 months after the last day of the Reporting Fiscal Year that is the first Transition Year of any Constituent Entity of the group. For a group with a calendar fiscal year, the first year in scope is 2025 and the 18-month deadline falls at the end of June 2027; every year after that carries the 15-month deadline.
Registration is governed separately. Federal Tax Authority Decision No. 12 of 2026, issued on 16 July 2026, sets the requirements for registration and deregistration of entities for the purposes of Cabinet Decision No. 142 of 2024 (per Federal Tax Authority Decision No. 12 of 2026, as of 7 August 2026). That text and the corporate tax legislation section that carries it are published on the Authority’s portal (per the Federal Tax Authority legislation pages, as of 7 August 2026), and the decision’s own cover page marks the English version as an unofficial translation.
The bottom line
Three numbers govern the UAE position of an in-scope group, and none of them is the corporate tax rate: the Minimum Rate of 15%, the carve-out rates for the fiscal year in question, and the de minimis figures of EUR 10 million and EUR 1 million, all set by Cabinet Decision No. 142 of 2024 as published in the Official Gazette.
A relief that lowers the effective tax rate below the Minimum Rate does not end the obligation; it moves the difference into the Top-up Tax, where the amount charged depends on how much payroll and how many tangible assets the group actually has in the country.
This material is a general analysis of published rules. It is not legal, tax, immigration or financial advice.