Understanding the Global Minimum Tax (Pillar Two) and Its Impact on MENA Groups

BEPS, Pillar Two, and Global Minimum Tax

Introduction

The Global Minimum Tax (GMT) under OECD BEPS 2.0 Pillar Two represents one of the most significant shifts in international taxation in decades.
Designed to ensure that large multinational enterprises (MNEs) pay a minimum effective tax rate (ETR) of 15% regardless of where they operate, Pillar Two will reshape tax structures across the Middle East and North Africa (MENA).

As MENA jurisdictions including the UAE, Saudi Arabia, Qatar, Egypt, and Bahrain align themselves with global tax reforms, regional groups must proactively assess their exposure and prepare for a new era of transparency, compliance, and tax equalization.

1. What Is the Global Minimum Tax (Pillar Two)?

Pillar Two introduces a global 15% minimum tax for multinational groups with consolidated revenues of €750 million or more.
It ensures that no matter where profits are booked even in traditionally low-tax jurisdictions an additional tax (“top-up tax”) may apply.

The Pillar Two system includes four main components:

  • GloBE Income Calculation

  • Effective Tax Rate (ETR) Test

  • Top-Up Tax Calculation

  • Allocation through IIR / UTPR / QDMTT

If the ETR in any jurisdiction falls below 15%, the group pays a top-up tax to bring it up to the minimum.

2. Key Rules Under Pillar Two

2.1 Income Inclusion Rule (IIR)

The parent jurisdiction applies a top-up tax when its subsidiaries in other countries fall below the 15% minimum.

2.2 Undertaxed Payments Rule (UTPR)

If the parent does not impose the IIR, other jurisdictions can deny deductions or impose top-up taxes.

2.3 Qualified Domestic Minimum Top-Up Tax (QDMTT)

Countries can impose their own domestic 15% top-up tax, ensuring they keep the revenue locally rather than letting foreign jurisdictions collect it.

Many MENA countries are already moving toward adopting QDMTT frameworks.

3. Why Pillar Two Matters for MENA Groups

Historically, several MENA jurisdictions especially the UAE and Bahrain benefited from low-tax or zero-tax regimes.

With Pillar Two:

  • Low tax is no longer a competitive advantage

  • Profits shifted to low-tax countries will trigger top-up taxes

  • Parent entities may face additional tax burdens abroad

This will significantly impact operational and group-level strategies for businesses across the region.

4. Expected Impact on Key MENA Jurisdictions

4.1 United Arab Emirates (UAE)

With the introduction of 9% corporate tax, the UAE is still below the 15% threshold.
This means:

  • Many UAE-headquartered groups will face top-up tax exposure

  • QDMTT is expected to be adopted to keep tax revenue in the UAE

  • Holding, financing, and IP structures may need reassessment

4.2 Saudi Arabia (KSA)

KSA’s effective tax rates are already above 15% for most entities.
However:

  • Multinational groups operating in KSA must integrate Pillar Two reporting

  • Cross-border intra-group payments may face new scrutiny

  • ZATCA is expanding compliance frameworks accordingly

4.3 Qatar

Although Qatar introduced corporate tax long ago, special zones and incentives may fall under low-tax regimes that trigger top-up taxes.

4.4 Egypt

Egypt is preparing domestic rules aligned with GMT principles.
Groups with international operations must prepare:

  • ETR analysis for each jurisdiction

  • Data mapping

  • Treaty interactions

  • Transfer pricing consistency

Egyptian subsidiaries of foreign groups may also face top-up tax via IIR imposed by the parent jurisdiction.

5. How Pillar Two Affects MENA Multinationals

5.1 Reduced Benefits of Low-Tax Jurisdictions

Traditional strategies relying on:

  • Offshore headquarters

  • Tax-free holding companies

  • IP boxes

  • Low-tax service centers

… will no longer shield profits from taxation.

5.2 Higher Compliance and Reporting Requirements

Groups must implement:

  • GloBE Information Returns

  • Jurisdiction-level ETR calculations

  • Consolidated financial data systems

  • Transfer pricing alignment

  • Substance documentation

5.3 Change in Operating Models

Multinationals must rethink:

  • Supply chains

  • IP ownership

  • Shared service centers

  • Regional HQ structures

All structures must now align with substance and minimum tax expectations.

5.4 Significant Data Demands (The Biggest Challenge)

Pillar Two requires data points not typically used in tax compliance, including:

  • Deferred tax calculations

  • Temporary differences

  • Uncertain tax positions

  • Intra-group timing adjustments

  • Jurisdiction-by-jurisdiction financial segmentation

ERP systems across MENA are not yet ready requiring strategic upgrades.

6. Practical Steps MENA Groups Should Take Now

Step 1 — Pillar Two Impact Assessment

Measure exposure across all jurisdictions.

Step 2 — ETR Computation Models

Calculate where top-up taxes may arise.

Step 3 — Data Gap Analysis

Identify missing financial, tax, and operational data.

Step 4 — Review of Group Structure

Assess holding companies, IP entities, and financing structures.

Step 5 — Policy & Governance Updates

Create internal Pillar Two compliance frameworks.

Step 6 — Technology & ERP Readiness

Upgrade systems to collect, calculate, and report GloBE data.

Conclusion

The Global Minimum Tax (Pillar Two) represents a fundamental shift in global taxation, and MENA multinationals must act now.
By preparing early through impact assessments, restructuring, and system readiness businesses can mitigate risks, maintain competitiveness, and ensure full compliance with the new global rules entering into force in 2025.

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