UAE FTA Issues New Top-up Tax Guide on Excluded Entities and Investment Entities
The UAE Federal Tax Authority (FTA) has issued a new Top-up Tax Guide – Excluded Entities and Investment Entities (TTGEIE1) in August 2026. The guide provides important clarification for multinational enterprise (MNE) groups on determining whether certain entities fall outside the UAE’s Top-up Tax charging provisions and the practical consequences of their classification.
The guide forms part of the UAE’s developing Qualified Domestic Minimum Top-up Tax (QDMTT) framework, which applies to Fiscal Years beginning on or after 1 January 2025. It is particularly relevant to groups that may be within the Pillar Two regime and have government-related entities, non-profit organisations, pension structures, investment funds, real estate investment vehicles, or other investment and holding entities within their group structure.
Why does this guide matter?
One of the key messages from the new guide is that an entity’s status under the UAE Corporate Tax regime does not automatically determine its status for Top-up Tax purposes.
For example, an entity that qualifies as an Exempt Person for UAE Corporate Tax purposes does not automatically qualify as an Excluded Entity under the QDMTT Legislation. Each entity must independently assess whether it meets the relevant conditions under the Top-up Tax rules.
This distinction is particularly important for large groups that may have historically assumed that an exemption for Corporate Tax purposes would automatically apply for Pillar Two purposes.
Which entities can qualify as Excluded Entities?
The guide categorises certain entities as primary Excluded Entities, including:
- Governmental Entities;
- International Organisations;
- Non-profit Organisations;
- Pension Funds;
- Investment Funds that are the Ultimate Parent Entity (UPE) of an MNE Group; and
- Real Estate Investment Vehicles that are the UPE of an MNE Group.
The guide also provides detailed conditions under which entities owned by these primary Excluded Entities may themselves qualify as secondary Excluded Entities.
The 95% and 85% ownership tests
Two broad categories of secondary Excluded Entities are recognised:
First category – 95% ownership test
An entity may qualify where at least 95% of its value is owned, directly or through a qualifying chain, by one or more primary Excluded Entities and it operates exclusively or almost exclusively to:
- hold assets or invest funds for the benefit of the qualifying Excluded Entity; and/or
- carry out activities ancillary to the activities of the primary Excluded Entity.
Second category – 85% ownership test
An entity may also qualify where at least 85% of its value is owned by qualifying primary Excluded Entities, provided that substantially all of its income consists of Excluded Dividends or Excluded Equity Gains or Losses.
These rules are particularly relevant to holding companies and investment vehicles within wider group structures.
A special focus on Investment Entities
The new guide separately addresses Investment Entities. An Investment Entity may include:
- an Investment Fund, Real Estate Investment Vehicle or Insurance Investment Entity;
- certain entities at least 95% owned by an Investment Entity that exclusively or almost exclusively hold assets or invest funds for its benefit; or
- certain entities at least 85% owned by an Investment Entity whose income is substantially comprised of qualifying excluded dividends or equity gains or losses.
Importantly, an Investment Fund or Real Estate Investment Vehicle that is itself the UPE of an MNE Group may qualify as an Excluded Entity. Where such an entity is not the UPE, its classification as an Investment Entity becomes relevant instead.
The guide also introduces detailed clarification regarding Insurance Investment Entities, including investment structures established in connection with liabilities arising under insurance or annuity contracts.
Investment Entity does not necessarily mean Excluded Entity
A particularly important distinction in the guide is between an Excluded Entity and an Investment Entity.
An Investment Entity that qualifies as an Excluded Entity is not a Constituent Entity for QDMTT purposes. However, even where an Investment Entity does not qualify as an Excluded Entity, a UAE Investment Entity is generally not covered by the charging provision of the QDMTT Legislation.
This distinction means that groups should not simply stop their analysis after determining that an entity does not qualify as an Excluded Entity. A further assessment of whether it qualifies as an Investment Entity may still be necessary.
An election may be available
The guide confirms that a Filing Constituent Entity may elect not to treat certain entities as Excluded Entities.
This election is available for:
- qualifying secondary Excluded Entities; and
- certain entities wholly owned by one or more Non-profit Organisations that meet the relevant conditions.
The election:
- is made on an entity-by-entity basis; and
- is generally a Five-Year election.
Where the election is made, the entity becomes a Constituent Entity and is subject to the QDMTT Legislation, including the applicable Top-up Tax registration requirements.
Accordingly, this is a classification decision that groups should consider carefully as part of their broader Pillar Two compliance and tax modelling process.
What are the practical consequences?
The guide confirms several significant practical consequences of qualifying as an Excluded Entity or Investment Entity.
No Top-up Tax registration and filing obligations
Generally, Excluded Entities and Investment Entities do not have administrative obligations under the QDMTT Legislation. This means that they are not required to:
- register with the FTA for Top-up Tax purposes;
- file a Top-up Tax Return; or
- file a Pillar Two Information Return in their own capacity.
However, information about these entities may still need to be reflected in the MNE Group’s overall Pillar Two Information Return filed by another relevant entity.
Their revenue can still count towards the EUR 750 million threshold
A key point that should not be overlooked is that exclusion from the charging or filing requirements does not necessarily mean exclusion from the scope assessment.
The revenue of an Excluded Entity or Investment Entity may still need to be taken into account when determining whether the MNE Group meets the EUR 750 million consolidated revenue threshold, where the relevant revenue is included in the UPE’s Consolidated Financial Statements.
This is a critical point for groups carrying out their initial Pillar Two scoping exercise.
Key takeaway for UAE groups
The FTA’s new guide reinforces that entity classification is a critical first step in Top-up Tax compliance.
Groups should carefully review their corporate structures and assess:
- whether any entities qualify as primary or secondary Excluded Entities;
- whether investment and holding structures qualify as Investment Entities;
- whether the relevant ownership, activity and income tests are satisfied;
- whether an election not to treat an entity as Excluded is beneficial;
- whether the revenue of Excluded or Investment Entities must still be included when assessing the EUR 750 million threshold; and
- what registration and filing obligations apply across the wider MNE Group.
The new guidance is especially relevant for groups with investment funds, real estate structures, holding companies, non-profit organisations, pension arrangements and insurance-related investment entities.
Our view
The publication of TTGEIE1 is a welcome development in the UAE’s ongoing implementation of the OECD Pillar Two framework. While the QDMTT rules apply to in-scope MNE groups, the classification of individual entities can significantly affect both the group’s compliance obligations and how the UAE Top-up Tax rules apply across its structure.
Businesses should therefore avoid relying solely on an entity’s UAE Corporate Tax status when assessing its Top-up Tax position. A separate analysis under the QDMTT Legislation is required, and the new guide provides a useful framework for undertaking that assessment.
The guide is the first version of TTGEIE1, issued in August 2026.
