Global minimum tax is reshaping how companies are bought and sold in the UAE: Report

Businesses buying or selling companies in the UAE are finding that the transaction itself, rather than their existing operations, brings them within the global minimum tax. That is the central finding of the latest ‘Deals Decoded’ publication from Dhruva, a Ryan LLC affiliate, on how the rules influence what a business is worth, how a deal is structured and when it should complete.

The global minimum tax, known internationally as Pillar Two, was agreed by more than 140 countries and jurisdictions through the Organisation for Economic Co-operation and Development. It requires the largest international groups to pay at least 15% tax on profits earned in every country where they operate, with any shortfall, known as a top-up tax, becoming payable. The UAE adopted it through Cabinet Decision No. 142 of 2024, effective for financial years beginning on or after 1 January 2025, and collects the shortfall on UAE profits locally rather than ceding it abroad.

The rules apply only to groups with worldwide revenue of at least EUR 750 million, approximately USD 860 million, in two of the previous four years. Many UAE businesses have concluded this places them safely outside. Dhruva identifies four points at which a transaction changes that assessment.

The first is scale. When two groups combine, their revenues are assessed together. A buyer with EUR 500 million of revenue acquiring a business with EUR 300 million enters the regime on completion, though neither neared the threshold alone.

“The threshold test is where most boards are caught out,” said Nimish Goel, Leader, Middle East Dhruva, A Ryan LLC Affiliate. “Two mid-sized businesses, each outside the regime, combine and find themselves inside it from day one. This is routinely delegated to the finance function when it belongs with those setting the price. Established at screening stage, the analysis costs little. Discovered after signing, it is hard to reverse.”

The second is timing. The tax is calculated annually on a country-wide basis and does not divide when ownership transfers, so a business being sold stays within the seller’s figures until legal completion, whenever the buyer assumes commercial risk. Completing on the first day of a financial year removes the problem.

The third is visibility. A group’s UAE companies are assessed together rather than individually, so a target cannot be evaluated in isolation.

“A business has no tax position of its own while it remains inside a seller’s group,” said Bhakti Thakker, Partner, Mergers and Acquisitions and International Tax at Dhruva, A Ryan LLC Affiliate. “The rate is an average across every company the seller holds in that country, so the buyer is pricing something it cannot fully see. Companies in the same country may also be required to settle one another’s liability, which a warranty does not address. The contract needs a defined section on who prepares the calculation, who bears the cost, and how it settles once figures are final.”

The fourth is the acquisition premium. Where a buyer pays more than the accounting value of a business, part of that cost is ordinarily written off over time, reducing taxable profit. The global minimum tax rules largely disregard those write-offs, leaving taxable profit higher than expected.

Two further developments narrow the margin. The allowance groups receive for genuine operations in a country, based on employment costs and physical assets, reduces annually by design, from 9.6% and 7.6% respectively in 2025 to 9.4% and 7.4% in 2026, and 5% each by 2033. A transitional simplification sparing some groups the full calculation ends for financial years beginning on or after 1 January 2027.

Ownership structure is decisive for sovereign wealth funds and private equity investors. Government bodies fall outside the rules, but that status does not extend to the companies they hold, and where investments sit beneath a holding company that is not a government body, the whole group is in scope.

Dhruva recommends four steps ahead of any transaction. Buyers should test the combined revenue threshold when a target is first identified, not during contract negotiation, and model the tax as a cash cost in financial projections, allowing for the reducing allowance. Sellers should prepare tax records for inspection in advance, since a position that cannot be evidenced invites a price reduction. Both should review insurance cover, which frequently excludes a risk already identified during due diligence. “Businesses that address this early are negotiating from a position of information. Those that do not are negotiating on assumption,” concluded Bhakti.