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Domestic Minimum Top-up Tax: computing the top-up

Applies
FY2025 onwards
Reviewed
Rule
UAE-CT-DMTT-CALC-2025.1
By

How is the UAE Domestic Minimum Top-up Tax computed?

The shortfall of the UAE effective tax rate below 15%, applied to Net Pillar Two Income less the substance-based income exclusion.

Per Cabinet Decision No. 142 of 2024, Article 5 of the attached Legislation, Computation of Effective Tax Rate and Top-up Tax

The Effective Tax Rate of the MNE Group for the UAE is the sum of the Adjusted Covered Taxes of each Constituent Entity located in the UAE divided by the Net Pillar Two Income of the UAE, that income being the positive amount of the Pillar Two Income of all such Constituent Entities less their Pillar Two Losses. The Top-up Tax Percentage is the positive percentage point difference between the Minimum Rate and the Effective Tax Rate. The Excess Profit is the positive amount of the Net Pillar Two Income less the Substance-based Income Exclusion. The Top-up Tax is the positive amount of the Top-up Tax Percentage applied to the Excess Profit, plus any Additional Current Top-up Tax.

The computation itself. Its output is the Jurisdictional Top-up Tax for the UAE, which Article 5.2.4 then allocates between the Constituent Entities in proportion to their Pillar Two Income unless a Domestic Designated Filing Entity has been appointed — and which a safe harbour may deem to be zero regardless.

Five formulas, in the article's order

The sequence

  • 5.1.2 — Net Pillar Two Income = Pillar Two Income of all Constituent Entities less their Pillar Two Losses
  • 5.1.1 — Effective Tax Rate = Adjusted Covered Taxes divided by Net Pillar Two Income
  • 5.2.1 — Top-up Tax Percentage = Minimum Rate less Effective Tax Rate
  • 5.2.2 — Excess Profit = Net Pillar Two Income less the Substance-based Income Exclusion
  • 5.2.3 — Top-up Tax = (Top-up Tax Percentage × Excess Profit) + Additional Current Top-up Tax

Four of those quantities floor at zero by their own terms

Net Pillar Two Income, the Top-up Tax Percentage, the Excess Profit and the Top-up Tax are each defined as "the positive amount, if any" or "the positive percentage point difference, if any". Dropping any one of those floors produces a negative figure that looks like a refund and is not one, so each is applied explicitly.

No Net Pillar Two Income is not an Effective Tax Rate of zero

Article 5.1.1 computes the rate for an MNE Group WITH Net Pillar Two Income, and dividing by zero is not a rate. That case is reported on its own — and Top-up Tax can still arise on it as Additional Current Top-up Tax, which Article 5.2.5 contemplates expressly.

5.1.3 — Investment Entities are excluded from the rate and the income

The Adjusted Covered Taxes and Pillar Two Income or Loss of Constituent Entities that are Investment Entities are excluded from both the Effective Tax Rate determination and the Net Pillar Two Income determination.

5.2.4 — and the result is then allocated

The Top-up Tax of each Constituent Entity is the Jurisdictional Top-up Tax multiplied by that Entity's Pillar Two Income over the aggregate Pillar Two Income of all Constituent Entities with Pillar Two Income — unless a Domestic Designated Filing Entity has been appointed to pay it.

The Substance-based Income Exclusion — Articles 5.3 and 9.2

  • A payroll carve-out and a tangible asset carve-out for each Constituent Entity located in the UAE, other than Investment Entities
  • Transitional rates for Fiscal Years beginning in 2025: 9.6% of payroll costs and 7.6% of tangible assets; in 2026: 9.4% and 7.4%; stepping down each year to 5% and 5%
  • Supplied here as one figure, computed by the reader; a Filing Constituent Entity may elect not to apply it for a year

Order of testing

  1. 1

    Inputs requiring your determination

    Any input a person must decide and has not decided stops the computation. An undecided input is never read as a no.

  2. 2

    Net Pillar Two Income of the UAE

    Where the losses are not less than the income, the Net Pillar Two Income is nil, no Effective Tax Rate is computed, and any Additional Current Top-up Tax still stands.

  3. 3

    Effective Tax Rate against the Minimum Rate

    Where the rate is not below the Minimum Rate, the Top-up Tax Percentage is nil and no Top-up Tax arises on the Excess Profit.

  4. 4

    Excess Profit after the Substance-based Income Exclusion

    Where the exclusion is not less than the Net Pillar Two Income, the Excess Profit is nil and no Top-up Tax arises on it, whatever the rate gap.

  5. 5

    Top-up Tax on the Excess Profit

    The Top-up Tax Percentage applied to the Excess Profit, plus any Additional Current Top-up Tax.

Examples

Illustrative scenarios — ours, not the authority’s — each computed live by this rule. Change any fact and the outcome is the rule’s, not a hand-written answer.

A rate below the minimum, with excess profit

UAE Constituent Entities with Pillar Two Income of AED 400,000,000, losses of AED 40,000,000, Adjusted Covered Taxes of AED 27,000,000 and a Substance-based Income Exclusion of AED 60,000,000.

Computed

Top-up Tax of AED 22,500,000 as computed for FY2026: the Effective Tax Rate is 7.5% — Adjusted Covered Taxes of AED 27,000,000 over Net Pillar Two Income of AED 360,000,000 — which is 7.5 percentage points below the Minimum Rate of 15%, and that percentage applied to Excess Profit of AED 300,000,000 (the Net Pillar Two Income less the Substance-based Income Exclusion of AED 60,000,000) gives the figure above. A safe harbour may deem the Top-up Tax for the UAE to be zero notwithstanding this computation — the Transitional CBCR Safe Harbour under Article 8.2.1 and the Simplified Calculations Safe Harbour under Article 8.2.2, each at the election of the Filing Constituent Entity. Article 5.2.4 then allocates the Top-up Tax between the Constituent Entities in proportion to their Pillar Two Income, unless a Domestic Designated Filing Entity has been appointed. Based on the figures you supplied.

Workings

Pillar Two Income of all Constituent EntitiesArticle 5.1.2(a) — as supplied
AED 400,000,000
Pillar Two Losses of all Constituent EntitiesArticle 5.1.2(b) — as supplied
(AED 40,000,000)
Net Pillar Two Income of the UAEArticle 5.1.2
AED 360,000,000
Adjusted Covered TaxesArticle 5.1.1 — as supplied
AED 27,000,000
Effective Tax RateArticle 5.1.1 — Adjusted Covered Taxes divided by Net Pillar Two Income
7.5%
Minimum RateArticle 5.2.1 — published value for FY2026
15%
Top-up Tax PercentageArticle 5.2.1 — the Minimum Rate less the Effective Tax Rate
7.5%
Substance-based Income ExclusionArticle 5.2.2(b), determined under Articles 5.3 and 9.2 — your figure, not one computed here
(AED 60,000,000)
Excess ProfitArticle 5.2.2
AED 300,000,000
Additional Current Top-up TaxArticle 5.2.3(c) — as supplied
AED 0
Top-up TaxArticle 5.2.3 — the Top-up Tax Percentage applied to the Excess Profit, plus any Additional Current Top-up Tax
AED 22,500,000

Decided by the top-up tax on the excess profit

A rate at or above the minimum

The same figures with Adjusted Covered Taxes of AED 60,000,000, giving an Effective Tax Rate above the Minimum Rate.

Computed

No Top-up Tax arises on the Excess Profit as computed: the Effective Tax Rate of 16.67% — Adjusted Covered Taxes of AED 60,000,000 over Net Pillar Two Income of AED 360,000,000 — is not below the Minimum Rate of 15% for FY2026, so the Top-up Tax Percentage under Article 5.2.1 is nil, that clause defining it as the positive percentage point difference if any. A safe harbour may deem the Top-up Tax for the UAE to be zero notwithstanding this computation — the Transitional CBCR Safe Harbour under Article 8.2.1 and the Simplified Calculations Safe Harbour under Article 8.2.2, each at the election of the Filing Constituent Entity. Based on the figures you supplied.

Workings

Pillar Two Income of all Constituent EntitiesArticle 5.1.2(a) — as supplied
AED 400,000,000
Pillar Two Losses of all Constituent EntitiesArticle 5.1.2(b) — as supplied
(AED 40,000,000)
Net Pillar Two Income of the UAEArticle 5.1.2
AED 360,000,000
Adjusted Covered TaxesArticle 5.1.1 — as supplied
AED 60,000,000
Effective Tax RateArticle 5.1.1 — Adjusted Covered Taxes divided by Net Pillar Two Income
16.67%
Minimum RateArticle 5.2.1 — published value for FY2026
15%
Top-up Tax PercentageArticle 5.2.1 — nil, being defined as the positive percentage point difference if any
0%
Substance-based Income ExclusionArticle 5.2.2(b), determined under Articles 5.3 and 9.2 — your figure, not one computed here
(AED 60,000,000)
Excess ProfitArticle 5.2.2
AED 300,000,000
Additional Current Top-up TaxArticle 5.2.3(c) — as supplied
AED 0
Top-up TaxArticle 5.2.3 — the Top-up Tax Percentage applied to the Excess Profit, plus any Additional Current Top-up Tax
AED 0

Decided by the effective tax rate against the minimum rate

A low rate, but the substance exclusion covers the income

A capital-intensive group with the same low Adjusted Covered Taxes but a Substance-based Income Exclusion of AED 380,000,000, which exceeds the Net Pillar Two Income.

Computed

No Top-up Tax arises on the Excess Profit as computed: the Effective Tax Rate of 7.5% is below the Minimum Rate of 15%, giving a Top-up Tax Percentage of 7.5%, but the Substance-based Income Exclusion of AED 380,000,000 is not less than the Net Pillar Two Income of AED 360,000,000, so the Excess Profit under Article 5.2.2 is nil. A safe harbour may deem the Top-up Tax for the UAE to be zero notwithstanding this computation — the Transitional CBCR Safe Harbour under Article 8.2.1 and the Simplified Calculations Safe Harbour under Article 8.2.2, each at the election of the Filing Constituent Entity. Based on the figures you supplied.

Workings

Pillar Two Income of all Constituent EntitiesArticle 5.1.2(a) — as supplied
AED 400,000,000
Pillar Two Losses of all Constituent EntitiesArticle 5.1.2(b) — as supplied
(AED 40,000,000)
Net Pillar Two Income of the UAEArticle 5.1.2
AED 360,000,000
Adjusted Covered TaxesArticle 5.1.1 — as supplied
AED 27,000,000
Effective Tax RateArticle 5.1.1 — Adjusted Covered Taxes divided by Net Pillar Two Income
7.5%
Minimum RateArticle 5.2.1 — published value for FY2026
15%
Top-up Tax PercentageArticle 5.2.1 — the Minimum Rate less the Effective Tax Rate
7.5%
Substance-based Income ExclusionArticle 5.2.2(b), determined under Articles 5.3 and 9.2 — your figure, not one computed here
(AED 380,000,000)
Excess ProfitArticle 5.2.2 — nil, being defined as the positive amount if any; the exclusion exceeds the net income
AED 0
Additional Current Top-up TaxArticle 5.2.3(c) — as supplied
AED 0
Top-up TaxArticle 5.2.3 — the Top-up Tax Percentage applied to the Excess Profit, plus any Additional Current Top-up Tax
AED 0

Decided by the excess profit after the substance-based income exclusion

Losses exceed income, with an additional current top-up

A loss-making year with no Net Pillar Two Income, where a recalculation under Article 5.4.1 has produced Additional Current Top-up Tax of AED 3,000,000.

Computed

No Effective Tax Rate is computed as computed: Article 5.1.1 calculates the Effective Tax Rate of an MNE Group with Net Pillar Two Income, and the Net Pillar Two Income of the UAE is nil — Article 5.1.2 defines it as the positive amount if any, and the losses of AED 120,000,000 are not less than the income of AED 80,000,000. Top-up Tax of AED 3,000,000 still arises as the Additional Current Top-up Tax under Article 5.2.3(c), which Article 5.2.5 contemplates where there is no Net Pillar Two Income for the year. A safe harbour may deem the Top-up Tax for the UAE to be zero notwithstanding this computation — the Transitional CBCR Safe Harbour under Article 8.2.1 and the Simplified Calculations Safe Harbour under Article 8.2.2, each at the election of the Filing Constituent Entity. Based on the figures you supplied.

Workings

Pillar Two Income of all Constituent EntitiesArticle 5.1.2(a) — as supplied
AED 80,000,000
Pillar Two Losses of all Constituent EntitiesArticle 5.1.2(b) — as supplied
(AED 120,000,000)
Net Pillar Two Income of the UAEArticle 5.1.2 — nil, being defined as the positive amount if any; the losses exceed the income
AED 0
Additional Current Top-up TaxArticle 5.2.3(c) — as supplied
AED 3,000,000
Top-up TaxArticle 5.2.3 — the Additional Current Top-up Tax alone, there being no Excess Profit
AED 3,000,000

Decided by the net pillar two income of the uae

Try it

Supply the facts and this rule computes the outcome in your browser, live. Leave a determination undecided and it blocks the result — it is never read as a no.

Not computed yet

4 inputs still need your determination:

  • What is the sum of the Pillar Two Income of all Constituent Entities located in the UAE for the Fiscal Year, determined under Article 3 — leaving out Investment Entities, which Article 5.1.3 excludes?
  • What is the sum of the Pillar Two Losses of all Constituent Entities located in the UAE for the Fiscal Year, as a positive amount, leaving out Investment Entities (Article 5.1.3)?
  • What is the sum of the Adjusted Covered Taxes of each Constituent Entity located in the UAE, determined under Article 4, leaving out Investment Entities (Article 5.1.3)?
  • What is the Substance-based Income Exclusion for the UAE, determined under Articles 5.3 and 9.2? It is computed from payroll and tangible assets across the Constituent Entities, which this rule does not do — the figure is yours.

Computed in your browser from the figures you supply. Nothing is sent anywhere, and the result is a computation against a rule — reference, not tax advice.

Thresholds

uae.dmtt_minimum_rate
15% · reviewed 2026-09-28 · source

Threshold values are published separately from the rule and carried with a citation. Where none has been published for the period being computed, the rule reports that rather than applying a default.

Sources

Share this rule

Reference, not tax advice.

Pankaj Agarwal — Tax Technology Leader