The Federal Tax Authority has issued TTGEIE1, providing detailed guidance on the treatment of Excluded Entities and Investment Entities under the UAE Pillar Two regime and clarifying the conditions that must be satisfied for certain entities to remain outside the scope of Top-Up Tax.

The UAE Pillar Two framework, introduced through Cabinet Decision No. 142 of 2024, includes a number of exclusions for specific categories of entities. These exclusions play an important role in determining which entities fall within the scope of the UAE Top-Up Tax regime and which remain outside it.

To provide greater certainty, the Federal Tax Authority has now published TTGEIE1, a dedicated guide addressing Excluded Entities and Investment Entities. The guidance consolidates the relevant rules and provides practical clarification on the conditions that must be met to benefit from these exclusions.

Which entities may qualify as Excluded Entities?

TTGEIE1 confirms that a number of entities may qualify for excluded status under the UAE Pillar Two framework, including:

·        International Organisations.

·        Non-Profit Organisations.

·        Pension Funds.

·        Certain Investment Funds.

·        Certain Real Estate Investment Vehicles.

·        Certain entities owned by qualifying excluded entities.

The guide also addresses the treatment of Permanent Establishments of excluded entities and the conditions that must be satisfied by subsidiary structures seeking to benefit from an exclusion.

What does the guidance say about Investment Entities?

A significant portion of TTGEIE1 focuses on Investment Entities. The guidance explains the circumstances in which investment funds, real estate investment vehicles, insurance investment entities and certain holding structures may qualify for special treatment under the UAE Pillar Two rules.

Importantly, the analysis goes beyond the legal form of the entity and focuses on ownership, activities and the nature of the income generated by the structure.

Why are the ownership and income tests important?

One of the key messages emerging from TTGEIE1 is that excluded status depends on satisfying specific conditions. The guidance includes detailed ownership and income tests for various categories of excluded entities and investment structures.

As a result, businesses should not assume that a particular entity is automatically excluded simply because it forms part of a pension, fund or investment structure. The relevant conditions should be reviewed periodically, particularly where there have been changes in ownership, activities or sources of income.

Can an entity elect not to be treated as excluded?

Yes. TTGEIE1 confirms that certain entities may make an election not to be treated as an Excluded Entity in specific circumstances. The guidance outlines the conditions and procedural requirements applicable to such elections.

This highlights the importance of assessing excluded status as part of a broader Pillar Two compliance review rather than treating it as a purely structural issue.

What should businesses do now?

Groups that operate investment, pension, fund or non-profit structures should consider:

·        Reviewing whether current entity classifications remain appropriate.

·        Assessing ownership and control arrangements.

·        Reviewing income streams and underlying activities.

·        Confirming whether any elections may be relevant.

·        Maintaining documentation supporting excluded or investment entity status.

·        Monitoring future changes that could affect the availability of an exclusion.

Altair Tax Insight

TTGEIE1 provides welcome clarity on an area that is particularly relevant for investment funds, pension arrangements, non-profit organisations and other structures that may fall outside the UAE Top-Up Tax regime.

While the exclusions themselves are not new, the guidance provides a clearer framework for assessing eligibility and reinforces the importance of reviewing the ownership, activity and income conditions supporting any exclusion. Businesses relying on these provisions should ensure that their classifications remain properly documented and regularly reviewed, particularly where there are changes in ownership, activities or income profile.