FTA guidance issued on 25 August 2026 explains how Excluded Entities and Investment Entities are treated under the UAE QDMTT.
As the UAE’s Pillar Two framework develops, multinational groups need to look beyond the EUR 750 million revenue threshold. On 25 August 2026, the Federal Tax Authority published its Top-up Tax Guide – Excluded Entities and Investment Entities (TTGEIE1), providing detailed guidance on entities that may fall outside the UAE’s Qualified Domestic Minimum Top-up Tax (QDMTT) charging provisions. The blog is particularly important for large multinational groups because being part of an MNE Group that meets the Pillar Two revenue threshold does not automatically mean every entity in the group is subject to UAE Top-up Tax.
EUR 750 MILLION
First, the EUR 750 million threshold still matters
The UAE QDMTT applies to Constituent Entities of an MNE Group where the Ultimate Parent Entity’s consolidated annual revenue is EUR 750 million or more in at least two of the four Fiscal Years immediately preceding the tested Fiscal Year. However, once the Group is within this threshold, the next question should be:
What is the Pillar Two status of each individual entity?
This is where the concepts of Excluded Entities and Investment Entities become important.
Which entities can qualify as Excluded Entities?
The FTA guide identifies six categories of primary Excluded Entities:
Governmental Entity
International Organisation
Non-profit Organisation
Investment Fund(UPE)
Pension Fund
Real Estate Investment
These entities are treated differently from ordinary Constituent Entities under the UAE QDMTT rules.
Subsidiaries of Excluded Entities may also qualify
The exclusion is not necessarily limited to the primary entity itself. Certain entities owned by primary Excluded Entities may qualify as secondary Excluded Entities.
The guide broadly provides two routes.
95% ownership test
An entity may qualify where at least 95% of its value is owned, directly or through a chain of Excluded Entities, by one or more qualifying primary Excluded Entities and it essentially:
- holds assets or invests funds for the benefit of those Excluded Entities; and/or
- undertakes activities ancillary to those of the Excluded Entities.
85% ownership test
Another category can apply where at least 85% of the entity’s value is owned by qualifying primary Excluded Entities and substantially all of its income consists of Excluded Dividends or Excluded Equity Gain or Loss.
The detailed conditions should therefore be tested rather than assuming that every subsidiary of an Excluded Entity is automatically excluded.
Corporate Tax Exempt Person does not automatically mean Pillar Two Excluded Entity
This is one of the most important practical points in the guide. An entity’s treatment under the normal UAE Corporate Tax regime does not automatically determine its Pillar Two treatment. The FTA expressly states that although there are similarities between the definitions, an Exempt Person under UAE Corporate Tax does not automatically qualify as an Excluded Entity under the QDMTT legislation. A separate assessment is required. For tax teams, this means that the Corporate Tax master file should not simply be copied across to the Pillar Two assessment.
What happens if an entity qualifies?
The practical consequences can be significant. According to the FTA guide, an Excluded Entity or Investment Entity located in the UAE is not subject to the charging provision of the QDMTT legislation. For an Excluded Entity, attributes such as:
- profits and losses;
- taxes accrued;
- tangible assets; and
- payroll expenses
are generally removed from the relevant QDMTT computations. Investment Entities require separate consideration because their attributes may, in certain circumstances and where relevant elections are made, affect calculations relating to their Constituent Entity owners. Therefore, Excluded Entity and Investment Entity should not simply be treated as interchangeable terms.
No UAE Top-up Tax registration or return filing for these entities
Perhaps the most commercially important clarification in the guide relates to compliance. The FTA confirms that Excluded Entities and Investment Entities do not have administrative obligations under the QDMTT legislation. Accordingly, 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.
This is particularly relevant following the introduction of the UAE’s Top-up Tax registration requirements. Before registering every UAE entity belonging to a large MNE Group, businesses should therefore determine the Pillar Two classification of each entity.
But does their revenue still count toward the EUR 750 million threshold?
Yes.
This is an important distinction. The FTA guide states that the revenue of an Excluded Entity and an Investment Entity should still be taken into account when applying the MNE Group’s consolidated revenue threshold, to the extent that the revenue is consolidated in the Group’s Consolidated Financial Statements.
For example:
Consolidated Revenue Calculation
The Group cannot simply remove the EUR 70 million and conclude that its revenue is only EUR 700 million for the threshold test. The entity may be excluded from the charging provision, but its consolidated revenue can still contribute towards determining whether the Group itself meets the Pillar Two threshold.
Does the entity disappear from the Pillar Two Information Return?
No.
Although the Excluded Entity or Investment Entity itself does not have to file a Pillar Two Information Return, a Pillar Two Information Return may still need to be filed by another entity for the MNE Group. The overall corporate structure reported in that return should include information relating to the Group’s Excluded Entities and Investment Entities. However, the guide specifically explains that information relating to the income, taxes, assets, etc. of Excluded Entities should not be reported in the Pillar Two Information Return. This creates an important distinction:
Excluded from QDMTT does not mean completely invisible for Pillar Two reporting purposes.
What should multinational groups do now?
For groups with UAE operations, a practical Pillar Two assessment should not stop after checking whether consolidated revenue exceeds EUR 750 million. The next step should be an entity-by-entity classification exercise. For each UAE entity, businesses should determine:
Step 1: Is the MNE Group within the EUR 750 million revenue threshold?
Step 2: Does the entity qualify as a primary Excluded Entity?
Step 3: If not, could it qualify as a secondary Excluded Entity under the 95% or 85% tests?
Step 4: Is the entity an Investment Entity?
Step 5: If neither exclusion applies, what are its UAE QDMTT registration, information reporting and Top-up Tax Return obligations?
This exercise should be documented because an entity’s normal UAE Corporate Tax classification alone is not sufficient to determine its Pillar Two status.
Key Takeaway
The latest FTA guide reinforces an important principle:
Being part of an EUR 750 million+ multinational group does not automatically mean every UAE entity is subject to Top-up Tax or has a filing obligation.
Excluded Entities and Investment Entities can fall outside the UAE QDMTT charging provision and do not themselves have Top-up Tax registration, Top-up Tax Return or Pillar Two Information Return obligations. However, the classification needs to be established carefully, and their revenue may still count when determining whether the MNE Group crosses the EUR 750 million threshold.
For multinational groups, the practical exercise is therefore not simply:
“Are we above EUR 750 million?”
It is also:
“Which of our UAE entities are actually within the QDMTT regime?”
RVG Chartered Accountants can assist multinational groups with UAE Pillar Two scope assessments, entity classification, registration and ongoing Top-up Tax compliance.
Disclaimer: This article is intended for general information only and should not be considered tax or legal advice. Pillar Two treatment depends on the facts and circumstances of each entity and MNE Group.
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