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Beyond Size: The True Scope of Transfer Pricing
From Reports to Real Business Insight
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What Is the Global Minimum Tax UAE & Its Impact on UAE Multinationals?
Kreston Menon
Taxation has always shaped how multinational businesses operate. For decades, companies chose low-tax jurisdictions to optimize costs and stay competitive. The landscape is now shifting with the introduction of the global minimum tax UAE, part of the wider initiative led by the Organisation for Economic Co-operation and Development (OECD) under its Base Erosion and Profit Shifting (BEPS) project. The UAE, known for its business-friendly tax regime, has aligned with this framework to stay consistent with international standards.

This move has important consequences for UAE-based multinationals, particularly those with significant cross-border revenues. The big question is how the global minimum tax UAE changes the playing field for companies that have long relied on favorable tax conditions. Well, let’s discuss them in the blog ‘Global Minimum Tax UAE & its Impact on UAE Multinationals’.

Table of Contents


What Is the New Minimum Top-Up Tax in the UAE


In late 2024, the UAE implemented Cabinet Decision No. 142 of 2024, introducing a Domestic Minimum Top-Up Tax (DMTT). This measure is the UAE’s response to the OECD Pillar Two UAE rules under the Base Erosion and Profit Shifting (BEPS) project.

In simple words, the new law ensures that multinational enterprises (MNEs) operating in the UAE pay at least 15% effective tax on profits within the country. If the local corporate tax or free zone incentives result in a lower rate, companies must pay a top-up tax to reach the 15% threshold. The rules apply from fiscal years starting 1 January 2025.

The DMTT aligns the UAE with international standards and ensures that large multinationals cannot avoid minimum taxation by structuring profits in low-tax jurisdictions.


Background: OECD BEPS Pillar Two Explained


The global minimum tax UAE originates from the OECD’s BEPS (Base Erosion and Profit Shifting) initiative. Pillar Two is specifically aimed at introducing a coordinated system where large multinationals with annual consolidated revenues exceeding EUR 750 million have to pay a 15 percent effective tax rate. The idea is simple: no matter where profits are booked, they should not escape taxation below this threshold.

For years, countries competed on tax incentives to attract foreign investment. This created an uneven playing field, as large groups could exploit low-tax jurisdictions. Pillar Two curbs this by allowing jurisdictions to impose a domestic minimum tax, which ensures that the revenue stays within the country rather than being taxed elsewhere through top-up mechanisms.


Who Is Affected? Global Revenue Thresholds for UAE Tax


Not every company in the UAE will be affected by the new minimum tax. The law applies only to multinational groups that meet certain size criteria.

  • To qualify, a group must have consolidated annual revenues of at least €750 million in at least two of the last four fiscal years.
  • The revenue test considers the Ultimate Parent Entity (UPE) of the multinational group. This means the financials of the entire group, not just the UAE entity, determine whether the rules apply.
What this really means is that small or mid-sized businesses are largely unaffected. The focus is on large corporations with cross-border operations, which could see additional tax obligations in the UAE.


How the Minimum Tax Works


The DMTT functions as a top-up. Let’s understand it with a simplified example:

If a UAE subsidiary pays UAE corporate tax at a rate of 9% due to free zone incentives, and the 15% minimum tax applies, the company will need to pay an additional 6% as top-up tax.
If the effective rate is already 15% or higher, no additional payment is required.
The computation considers all taxable profits of the UAE entity within the multinational group. The law includes guidance on excluding certain items, such as investment entities or sovereign wealth funds, under specific conditions.


Global Revenue Thresholds for UAE Tax


The legislation clearly defines which companies fall within scope. The threshold of EUR 750 million (or its equivalent in dirhams) applies based on consolidated group revenues reported in the ultimate parent entity’s financial statements. Only those groups that cross this threshold for at least two of the four preceding fiscal years will be subject to the domestic minimum tax in the UAE.

This design ensures that compliance is targeted at the largest players while keeping smaller and medium-sized enterprises outside the framework. For UAE-based holding structures, this means careful monitoring of global revenues and consolidated accounts is now essential.


Impact of Minimum Tax on UAE Multinationals




The introduction of the DMTT has several implications for UAE-based multinationals.

1. Higher Tax Burden

Companies that previously relied on free zone exemptions or low corporate tax rates may now face additional liability. Even if profits remain in the UAE, the top-up ensures that the effective rate does not fall below 15%.

2. Compliance and Reporting Requirements

Multinationals must maintain accurate records and report their tax position under the new rules. This includes:

  • Collecting data across all jurisdictions in which the group operates.
  • Calculating effective tax rates.
  • Filing reports to UAE authorities.
The compliance process can be resource-intensive, especially for companies with complex global structures.

3. Strategic Considerations

The minimum tax may influence corporate decisions such as:

  • Structuring investments across jurisdictions.
  • Determining the location of intellectual property or financing entities.
  • Evaluating free zone participation versus mainland operations.
What this really means is that tax planning in the UAE must now consider global revenue and tax structures, not just local incentives.


4. Implications for Free Zone Entities

Free zone companies with preferential tax rates will need to assess whether these benefits trigger a top-up obligation. Even zero-percent corporate tax in a free zone may not shield a company if the overall group’s effective rate is below 15%.

Industry-Specific Impact on UAE Multinationals.


The 15 percent minimum tax will affect industries differently. Some examples include:

Energy and Natural Resources

Operate through joint ventures and cross-border projects.

Tracking effective tax rates across multiple jurisdictions can be complex.

Technology and Digital Services

Previously relied on intellectual property structures and royalties to reduce tax.

These models may now trigger top-up obligations.

Logistics and Aviation

The UAE’s role as a hub means global operators may be in scope.

Effective tax rate monitoring becomes crucial due to varying margins.

Financial Services

Already subject to strict regulations.

Will still need to align reporting systems with Pillar Two requirements.

The key takeaway is that each sector faces unique challenges, so UAE multinationals must approach the global minimum tax with well-planned, industry-specific strategies.


Key Rules and Exceptions


The law provides certain exemptions and clarifications:

  • Investment entities may be excluded under specific conditions.
  • Sovereign wealth funds are generally outside the scope if they qualify as governmental entities.
  • Certain joint ventures or special-purpose entities may be treated as separate groups for reporting purposes.
These rules aim to prevent loopholes while avoiding excessive compliance for smaller or public-sector entities.

Also Read: Documents Required for VAT Registration UAE.

Strategic Planning for UAE Multinationals


For large groups, preparing for the DMTT is critical. Recommended steps include:

1. Assess Eligibility

Determine if the group meets the €750 million revenue threshold.

2. Calculate Effective Tax Rate

Evaluate current UAE tax obligations, including free zone benefits.

3. Review Entity Structure

Examine how subsidiaries and branches are organized, and consider adjustments if the current structure leads to unnecessary top-up liabilities.

4. Strengthen Financial Reporting

Ensure accounts and tax records support the DMTT calculation. Accurate data across multiple jurisdictions is key.

5. Plan Cash Flow

Allocate funds for potential top-up tax. Unexpected liabilities can impact budgeting and profit margins.

6. Monitor Updates

UAE authorities may issue additional guidance or clarifications. Staying updated helps avoid surprises and ensures compliance.


Broader Implications


The global minimum tax UAE reflects an international shift towards standardized taxation for multinational enterprises. For businesses in the UAE, this means:

  • Fewer opportunities to rely solely on low-tax incentives.
  • Increased transparency and reporting expectations.
  • Strategic tax planning becoming a core element of corporate decision-making.
In practical terms, the change is not just about paying more tax; it also signals that the UAE is aligning with OECD UAE standards. This alignment could improve investor confidence and strengthen the UAE’s position as a hub for international business.


Compliance and Reporting Challenges for UAE Multinationals


The implementation of the global minimum tax UAE reshapes how multinationals manage compliance and reporting. While the initiative strengthens global tax fairness, it also creates practical challenges for companies that now need to rethink their tax governance models. Here are some of the key hurdles:

  • Complexity of the rules
  • Complexity of the rules

The OECD Pillar Two UAE framework is highly detailed, covering aspects such as income inclusion, undertaxed payments, and a lot more. For UAE multinationals, understanding how these rules interact with the domestic minimum top-up tax and the corporate tax regime requires significant effort. 

  • Heavy data requirements
    Multinationals are now required to collect and reconcile data from different jurisdictions, subsidiaries, and business units. Inconsistent accounting practices or decentralized systems can make this process slow and prone to mistakes.
  • Technology and system upgrades
    Many companies will find their existing reporting tools inadequate for the level of detail now required. Investing in upgraded ERP systems, tax reporting software, and digital compliance platforms has become essential. 
  • Risk of penalties and reputation issues
    Inaccurate or late reporting can attract financial penalties and trigger audits. Beyond that, reputational damage is a real concern. With global attention on how jurisdictions like the UAE are adapting to international tax reforms, transparency and compliance have become closely tied to corporate credibility.
  • Shortage of skilled professional
    The global minimum tax is still a new concept in the region, and tax teams in the UAE may lack prior experience in managing such complex reporting requirements. This shortage of expertise often forces businesses to either invest heavily in training or rely on external advisors.
  • Challenges of cross-border alignment
    UAE multinationals typically operate across several countries, each with its own reporting expectations. Aligning compliance frameworks across jurisdictions while maintaining consistency with the UAE’s domestic top-up tax rules creates another layer of difficulty.
To conclude, the global minimum tax UAE marks a significant development for multinationals operating in the Emirates. Companies with large global revenues must now consider both their local and global tax positions to comply with the 15% minimum effective rate.

What this really means is that tax planning and compliance are more important than ever. Large UAE multinationals should review their structures, prepare for additional reporting, and forecast potential tax liabilities. Staying informed and proactive will ensure compliance and reduce unexpected financial risks.


Stay Ahead with Kreston Menon


With the experts of Kreston Menon, you can easily stay updated in the business scenario of Dubai. Our team helps UAE multinationals navigate complex tax rules and maintain compliance while planning for growth.


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Transfer Pricing: What It Is, How It Works, and Real Business Examples
Kreston Menon
Transfer pricing might not be a term you hear every day, but it’s responsible for shaping how over half of global trade is taxed. In fact, more than 60% of international trade happens within multinational groups, between companies that are part of the same group but operate in different countries.

When these companies buy, sell, or license things to each other, they have to decide on a price. That price, called the transfer price, has a big impact on how profits (and taxes) are spread across countries. If the price is too high or too low, it could shift profits to lower-tax jurisdictions, which is exactly what tax authorities want to avoid.

That’s why most countries, including the UAE, now have rules in place to ensure these prices follow the “arm’s length” standard, which means the pricing should be similar to what unrelated businesses would use. With the UAE recently introducing its own corporate tax regime, transfer pricing has become an area that local businesses can no longer miss. 

In this blog, let’s look at what transfer pricing really means, how it works, the common methods used, and how it connects with corporate tax compliance. 


What is Transfer Pricing?


Transfer pricing is the price one part of a company charges another part of the same company for goods, services, or use of intellectual property. These are not deals between strangers; they are internal. But even then, the prices need to make sense.

The transfer pricing meaning lies in the principle that companies should treat these internal transactions as if they were dealing with unrelated businesses; this is what is called the arm’s length principle. The price should be similar to what you would charge (or pay) if you were dealing with an independent party in a similar situation.


Why Is Transfer Pricing So Important?


At first glance, pricing between two branches of the same company might not seem like a big deal. But when those branches are in different countries, the way you price things internally can have a big impact on how much tax gets paid and where.

Why do tax authorities, including those in the UAE, take transfer pricing seriously? Let us look:

  • Prevents profit shifting: Some companies might be tempted to move profits to countries with lower tax rates by tweaking internal prices. Transfer pricing rules are meant to stop that.
  • For fair tax collection: If a business makes money in the UAE, the UAE should get its fair share of tax revenue. Fair pricing ensures that it happens.
  • Promotes transparency: Clear and consistent internal pricing makes it easier for both businesses and tax authorities to stay on the same page.
  • Supports fair competition: When everyone plays by the same rules, businesses compete fairly, and no one gets an unfair tax advantage.
  • Aligns with international tax standards: Following global standards (like those from the OECD) helps businesses avoid being taxed twice on the same income and keeps them out of international tax trouble.


Transfer Pricing and Corporate Tax: What’s the Connection?


Transfer pricing directly impacts corporate tax, especially in multinational businesses. When companies trade across borders with related entities, tax authorities want to make sure the pricing is fair and income isn’t being shifted around just to lower tax bills.

With the UAE rolling out its corporate tax system (effective from June 1, 2023), businesses operating locally and with international ties must now keep their transfer pricing in check. This includes having the right documentation, applying acceptable methods, and being able to explain how the prices were decided.


The Arm’s Length Principle in Transfer Pricing


Everything in transfer pricing revolves around the arm’s length principle. To put it in simple words, it means related companies should price their transactions just like unrelated businesses would.

For example, if a UAE-based parent company sells products to its subsidiary in India, the price charged should be similar to what the company would charge any other external customer. That way, each country gets its fair share of tax revenue.


Common Transfer Pricing Methods 




There is no so called general approach to transfer pricing. Depending on the type of transaction, companies can choose from a few globally accepted methods. Let us have a quick overview:

Comparable Uncontrolled Price (CUP) Method

This method compares the price of the related-party transaction to a similar transaction between unrelated companies.

Let’s consider an example: A UAE business sells machinery to its affiliate in Jordan. If it also sells the same machinery to an independent buyer in Saudi Arabia, the pricing from that deal can be used for comparison.

Resale Price Method

You start with the final resale price to a third party and subtract a typical gross margin. The remainder is considered the transfer price. This method works best when the distributor doesn’t add much value before reselling the product.

Cost Plus Method

This involves adding a standard profit margin to the costs incurred by the supplier. It is often used for manufacturing or service transactions.

Transactional Net Margin Method (TNMM)

Rather than looking at the price directly, this method focuses on net profit margins. You compare the profit earned from a controlled transaction to what similar independent businesses earn.

Profit Split Method

Here, the total profit from a transaction is split between the related entities based on how much value each one contributes. It is often used when the businesses are very closely connected in operations.

Each method has its place, and choosing the right one depends on the type of transaction, the roles each party plays, and how easy it is to find reliable data.

Also Read: Documents Required for VAT Registration UAE

Examples of  Transfer Pricing


1. Using Intellectual Property

Imagine a US-based software firm licenses its app to its UAE subsidiary. The UAE office pays a royalty fee. That fee should reflect what any other unrelated business would pay for similar software.

2. Intercompany Loans

A parent company in the UAE lends money to its related company in the UK. The interest rate charged needs to be similar to what a regular bank would charge under the same conditions.

3. Internal Distribution

A UAE manufacturing firm sells products to its own distribution unit in India. The pricing should leave enough margin for the Indian unit to cover costs and earn a standard profit, just like any independent distributor would.

Thus, these examples show how important it is to get transfer pricing right, for both compliance and to avoid potential penalties.


What Are the Transfer Pricing Requirements in the UAE?


Under the new corporate tax laws, the UAE follows the global standards set by the OECD. Businesses here now have a few key responsibilities:

  • Related Party Disclosures: Details of related-party transactions must be included in the tax return.
  • Transfer Pricing Documentation: This includes two key reports:
  • Master File: Gives an overview of the multinational group’s structure and pricing policies.
  • Local File: Covers key aspects of local operations, including pricing strategies, benchmark analysis, and transaction records.
If your UAE-based business is part of a larger international group, there is a fair chance you will need to prepare this documentation to stay compliant.


What Are the Common Challenges with Transfer Pricing?




Getting transfer pricing right isn’t always easy. Here are some of the issues businesses often face:

  • Finding the right market comparables.
  • Handling differences in regulations across countries.
  • Picking the most appropriate method.
  • Managing detailed documentation.
  • Dealing with tax audits and disputes.
  • That is why many companies work with UAE corporate tax consultants who specialize in this area, which can help businesses avoid mistakes that may cost them a lot.

The Role of Corporate Tax Services in UAE


With the introduction of corporate tax, businesses in the UAE have to pay more attention to how they handle transfer pricing. This is exactly when businesses can benefit from professional tax support. These firms offer:

  • Help with evaluating risks in intercompany pricing.
  • Advice on setting up transfer pricing policies.
  • Support with benchmarking and economic analysis.
  • Assistance with documentation and reporting.
  • Guidance during tax authority reviews and audits.
Having experienced advisors can make a big difference in making your company stay compliant and confident throughout the process.


Make Transfer Pricing Simpler with Kreston Menon


Transfer pricing sounds technical, and maybe even a bit overburdening. But it doesn’t have to be, when

Kreston Menon is at play, as we believe that managing tax and compliance shouldn’t slow your business down. We help businesses like yours get the transfer pricing done right.

What working with us feels like:

  • Your intercompany pricing is carefully reviewed to reflect market standards, keeping you in line with tax regulations.
  • Our team takes care of the complete documentation process, including both Master and Local Files, which are designed to meet UAE tax regulations.
  • We help identify the most appropriate transfer pricing method for your business and support it with accurate benchmarking.
  • If you are facing an audit or tax review, we provide full assistance and representation to help you respond confidently and effectively.
Yes, Kreston Menon makes the whole process smoother and more strategic, like setting up your transfer pricing framework for the first time or refining an existing one. So, reach out to us at the earliest to stay ahead and compliant, always!



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