How Should UAE-Headquartered Groups Structure Holdings, IP and Financing Under Pillar Two?

UAE-headquartered groups should structure for commercial substance, defensible transfer pricing, clear GloBE classification and predictable jurisdictional effective tax rates - not merely the lowest headline rate. Pillar Two can neutralise part of the benefit from holding mobile income, intellectual-property returns or financing spreads in a low-tax entity, particularly where the activity has limited eligible payroll and tangible assets.

The correct process is to model the existing structure first, identify where top-up tax arises, and test each proposed change across all affected jurisdictions. A restructure may improve the UAE DMTT result but increase an Income Inclusion Rule, Undertaxed Profits Rule, withholding tax, interest-denial or transfer-pricing exposure elsewhere. Transition rules can also affect asset transfers, reorganisations and deferred-tax attributes.

Sustainable UAE structuring still has significant value. The UAE remains an attractive headquarters location for groups with real decision-making, management, treasury, technology, logistics or operating functions. Pillar Two changes the measurement of that value: business purpose, people, assets, governance, tax certainty and compliance efficiency now matter more than nominal rate arbitrage.

What has Pillar Two changed for UAE-headquartered groups?

The UAE's Domestic Minimum Top-up Tax applies to UAE constituent entities of in-scope multinational enterprise groups for fiscal years beginning on or after 1 January 2025. The Ministry of Finance Top-up Tax page confirms the EUR 750 million group-revenue threshold and that the UAE has not introduced an Income Inclusion Rule at this stage.

Before Pillar Two, a tax structure could be evaluated largely by comparing statutory rates, exemptions and withholding taxes. Under Cabinet Decision No. 142 of 2024, an in-scope group must also calculate the effective tax rate in each jurisdiction and determine whether top-up tax applies to excess profit.

Pillar Two is not a prohibition on restructuring. It is a second measurement framework. A transaction should make commercial sense under company law, financing, regulatory, operational and transfer-pricing principles before its minimum-tax consequences are considered.

Which UAE-headquartered groups need to revisit their structure?

The immediate population is groups meeting the EUR 750 million consolidated revenue test in at least two of the four preceding fiscal years. Groups close to the threshold should also plan ahead because acquisitions, organic growth, mergers, demergers and short fiscal periods can change the scope result.

Priority structures include:

• UAE ultimate parent entities with multiple foreign subsidiaries.

• regional headquarters that charge management or shared-service fees.

• UAE holding companies that also conduct financing, licensing or trading.

• free-zone principals earning substantial qualifying income at 0%.

• intellectual-property owners with royalty income and limited operating teams.

• treasury companies earning cross-border interest spreads.

• joint ventures and minority-owned subgroups.

• groups planning an acquisition, internal reorganisation or migration of functions.

The legal entity map should be reconciled to the ultimate parent's consolidation perimeter. The FTA's Top-up Tax guides and references include current scope and excluded-entity materials that support this classification work.

How should a UAE holding-company structure be assessed?

Classification comes before optimisation. The group must identify the ultimate parent entity, intermediate parent entities, partially owned parent entities, investment entities, joint ventures, minority-owned subgroups and excluded entities. A company described commercially as a "holding company" may perform functions that produce very different GloBE results.

The UAE Corporate Tax Law contains the domestic participation exemption and other provisions relevant to dividends and equity interests. Under GloBE, qualifying excluded dividends and certain excluded equity gains or losses are removed from Pillar Two income, subject to detailed definitions and elections. A pure equity-holding return may therefore be less likely to drive ordinary top-up tax than active fee, financing or licensing income earned by the same company.

Combining every function in one holding entity can create avoidable complexity. Management fees, interest income, royalty income and equity returns may require different accounting, transfer-pricing and GloBE adjustments. Separating functions may improve governance and evidence, but adding entities also increases registrations, data collection and classification risk. The objective is not automatic fragmentation; it is a legal structure that reflects how the business is actually managed.

Are dividends received by a UAE holding company subject to top-up tax?

Often, qualifying dividends are excluded from GloBE income, so they do not enter the ordinary jurisdictional denominator in the same manner as operating profit. However, portfolio shareholdings, short-term holdings, related taxes and elections require detailed review.

The group should reconcile the domestic participation exemption with the GloBE excluded-dividend definition. The two tests are not identical. A dividend may receive UAE Corporate Tax relief yet require separate analysis under Pillar Two, or the related withholding tax may need to be excluded or allocated differently in Adjusted Covered Taxes.

A holding-company model should therefore show the legal ownership percentage, holding period, accounting classification, domestic exemption and GloBE treatment for each material investment.

How does Pillar Two affect UAE intellectual-property structures?

Low-substance IP ownership is one of the structures most directly affected by a 15% jurisdictional floor. A UAE entity may earn royalty or residual profit while holding limited payroll and tangible assets. If its income contributes to a UAE ETR below 15%, the DMTT can recapture much of the rate benefit, while the substance-based income exclusion offers limited protection because it is based on payroll and tangible assets, not the value of intangibles.

Transfer pricing remains decisive. The people who develop, enhance, maintain, protect and exploit the IP - commonly described as DEMPE functions - must be reflected in the functional analysis and profit allocation. The OECD Transfer Pricing Guidelines 2022 provide the international framework for intangibles and financial transactions, while the FTA Transfer Pricing Guide explains the UAE arm's-length requirements.

A durable UAE IP model normally requires:

• genuine authority over IP strategy and risk.

• appropriately skilled UAE personnel or clearly governed external resources.

• legal agreements that match actual conduct.

• development and exploitation decisions supported by board and operating evidence.

• arm's-length compensation for group entities performing DEMPE functions.

• protection and registration processes appropriate to the IP.

• a model that includes DMTT rather than assuming royalty income remains at 0% or 9%.

Moving legal ownership without moving or remunerating the relevant functions rarely creates a defensible outcome. It may also trigger tax, valuation, exit-charge or transition consequences in the transferor jurisdiction.

Does UAE substance eliminate top-up tax on IP income?

No. Substance helps, but it performs two different roles.

For transfer pricing, real people and decision-making support the entity's entitlement to an arm's-length return. For Pillar Two, eligible payroll and tangible assets generate the SBIE, which reduces Excess Profit. Neither rule automatically exempts IP income or increases the jurisdictional ETR to 15%.

An IP company with a capable UAE team may have a stronger transfer-pricing position and a larger payroll-based exclusion than a legal shell. Yet high residual IP profit can still exceed the exclusion and face DMTT. The group must quantify both the defensible income allocation and the minimum-tax charge.

How should a UAE financing or treasury company be reviewed?

A financing company may earn interest margin with relatively few employees and limited tangible assets. This creates the same structural concern: significant GloBE income with a comparatively small SBIE.

The transfer-pricing analysis must price the loan or guarantee, assess the borrower's creditworthiness, determine the lender's risk control and evaluate whether the lender is entitled to more than a risk-free or risk-adjusted return. Ministerial Decision No. 97 of 2023 sets relevant UAE master-file and local-file thresholds, subject to its terms.

Pillar Two modelling should then consider:

• the UAE entity's accounting spread and Adjusted Covered Taxes.

• interest deductions and limitation rules in borrower jurisdictions.

• withholding tax and its covered-tax allocation.

• currency and hedging results.

• guarantees, cash pooling and implicit support.

• losses or excess tax capacity elsewhere in the UAE blend.

• IIR or UTPR exposure affecting non-UAE members.

A financing structure can suffer denied deductions in the borrower country while also creating low-taxed income in the lender country. The post-top-up result should therefore be compared with commercial alternatives such as local borrowing, central external funding or a treasury hub with stronger operational substance.

What does the SBIE change in location decisions?

The substance-based income exclusion removes a formulaic return on eligible payroll and tangible assets from the top-up base. It can make an operating headquarters, service centre, manufacturing plant or logistics hub more resilient under Pillar Two than a low-substance entity earning mobile income.

The SBIE should not be treated as a subsidy for unnecessary headcount or assets. Business needs, employment law, regulatory requirements, operational control and transfer pricing come first. The group should then capture eligible payroll and asset information accurately and determine how substance affects the post-tax business case.

For example, locating a genuine regional procurement team, treasury team and management function in the UAE may align profit with decision-making and create eligible payroll. Merely assigning contracts to a UAE entity while decisions remain abroad is unlikely to achieve the same transfer-pricing or governance outcome.

How do UAE free zones affect group structuring?

Qualifying Free Zone Person status can remain valuable under ordinary Corporate Tax, particularly for groups outside Pillar Two. For an in-scope MNE group, 0% qualifying income can lower the blended UAE GloBE ETR and increase DMTT.

The FTA Free Zone Persons Guide explains adequate substance, qualifying income, the de minimis requirement, audited financial statements and transfer-pricing compliance. The free-zone test and the Pillar Two test should be performed separately, then integrated into one model.

An in-scope group should not surrender QFZP status solely because 9% looks closer to 15%. Paying ordinary Corporate Tax may increase covered taxes and reduce DMTT, but the overall tax can remain close to the minimum floor. Losses, deferred tax and differences between taxable and GloBE income can change the comparison. SBC's article on UAE free zones and Pillar Two explains the interaction in more detail.

Can simplifying the legal structure improve Pillar Two compliance?

Sometimes. Fewer dormant or duplicative entities can reduce registration, classification, data and reconciliation work. Clearer ownership chains may make the ultimate parent, intermediate parent and minority-owned positions easier to apply.

However, a merger or liquidation can create its own tax and GloBE consequences. Assets and liabilities may transfer at accounting values that do not match local tax values. Deferred-tax attributes, losses and transition balances may move or expire. The group should test the reorganisation provisions in the OECD GloBE Model Rules and the UAE Corporate Tax consequences before executing.

Simplification is most valuable where it follows commercial reality. Eliminating entities that no longer have a business purpose is different from collapsing genuinely separate regulated or operational businesses.

What transition risks arise when assets or functions move?

Pillar Two contains rules for reorganisations, asset transfers, changes in ownership and tax attributes. A transfer may affect the seller's GloBE income, the buyer's carrying value, deferred tax and future ETR calculations. Internal transfers after the transition date can be treated differently from ordinary accounting expectations.

The current UAE interpretative basis is Ministerial Decision No. 96 of 2026, which applies from fiscal years beginning on or after 1 January 2025 and adopts the 2026 OECD materials. The OECD 2026 Consolidated Commentary should be reviewed for the relevant transaction and period.

No asset, IP, financing or ownership migration should be approved from a one-country tax memo. The analysis should include both sides of the transaction and the countries applying IIR, UTPR or a domestic minimum tax.

What does sustainable UAE Pillar Two structuring look like?

The UAE's treaty network and operating environment remain relevant. The Ministry of Finance's Double Taxation Agreements page can be used to identify treaty resources, but treaty access should always be tested against residence, beneficial ownership, principal-purpose and substance requirements.

A practical restructuring process for UAE-headquartered groups

1. Diagnose the current structure

Classify every entity, calculate jurisdictional ETRs, quantify SBIE and identify which income streams create top-up. Reconcile the model to CbCR and the consolidation perimeter.

2. Define the commercial objective

Document whether the proposed change supports governance, financing, market access, regulatory needs, operational control, risk management or cost efficiency. Tax should evaluate a real business proposal, not invent its purpose afterward.

3. Model all affected taxes and jurisdictions

Compare Corporate Tax, DMTT, IIR/UTPR, withholding tax, interest limitations, exit charges, VAT or customs where relevant, and compliance costs. Include at least a three-year view.

4. Test transfer pricing and substance

Prepare a functional analysis, determine arm's-length remuneration and identify the people and assets required to perform the proposed activities. Confirm that legal agreements match operating reality.

5. Review transition and filing consequences

Assess asset bases, deferred tax, losses, elections, safe harbours, registrations and the effect on the Pillar Two Information Return. Check qualified status in the OECD Central Record.

6. Implement with evidence and monitoring

Approve the change through the correct boards, execute agreements, migrate functions and systems, and update TP documentation. Monitor the actual ETR and substance against the model after implementation.

Frequently asked questions

Does Pillar Two make the UAE less attractive as a headquarters location?

It reduces pure headline-rate arbitrage for in-scope groups but does not remove the UAE's operational, legal, infrastructure, treaty and talent advantages. The headquarters case should be measured on post-top-up economics and real business substance.

Are dividends received by a UAE holding company always excluded?

No. Many qualifying dividends are excluded from GloBE income, but portfolio interests, holding periods, elections and associated taxes require detailed review under both UAE Corporate Tax and Pillar Two.

Is a low-tax UAE IP company still effective?

Only if the IP return is commercially and transfer-pricing defensible and the post-DMTT result remains competitive. A legal owner with limited DEMPE functions and little substance may receive limited SBIE protection.

Does adding UAE employees eliminate top-up tax?

No. Eligible payroll can increase the SBIE and real functions can support transfer pricing, but neither automatically increases the jurisdictional ETR to 15% or exempts residual profit.

Should an in-scope group elect out of QFZP status?

Not without multi-year modelling. Ordinary Corporate Tax may increase covered taxes and reduce DMTT, but the overall tax, losses, deferred tax and legal consequences must be compared.

Can a UAE finance company still earn an arm's-length spread?

Yes, where it performs and controls the relevant financing functions and risks. Pillar Two may reduce the rate benefit, and the borrower jurisdiction may separately limit deductions or impose withholding tax.

Should a group restructure before its first Pillar Two filing?

It should model immediately but implement only after reviewing commercial purpose, TP, local taxes, transition rules and data readiness. A rushed restructure can create more risk than the top-up it seeks to reduce.

Do groups below EUR 750 million need to plan for Pillar Two?

They are generally outside the core GloBE scope, but groups approaching the threshold should design new structures and systems with future scope in mind, particularly before acquisitions or rapid expansion.

Primary sources and further reading

• UAE Cabinet Decision No. 142 of 2024

• UAE Ministerial Decision No. 97 of 2023

• UAE Ministry of Finance: Top-up Tax

• UAE Ministry of Finance: Double Taxation Agreements

• UAE Corporate Tax Law

• OECD GloBE Model Rules

• UAE Ministerial Decision No. 96 of 2026

• OECD 2026 Consolidated Commentary

• FTA Top-up Tax guides and references

• OECD Transfer Pricing Guidelines 2022

• FTA Transfer Pricing Guide

• OECD Central Record of qualified legislation

• FTA Free Zone Persons Guide

How SBC Tax Consulting can help

SBC's international tax and transfer pricing teams can combine the structural diagnostic, TP analysis and Pillar Two model. We test holding, IP and financing structures against DMTT, IIR/UTPR and transition rules, and keep the result aligned with the Pillar Two Information Return. Contact SBC to discuss a proposed group reorganisation.

This publication is for general information only and does not constitute professional advice. Please consult your SBC advisor before acting on any matter covered here.