If your business belongs to a multinational group with consolidated revenue of EUR 750 million or more, you have probably already registered for UAE Top-up Tax (the Domestic Minimum Top-up Tax, or “DMTT”).
But not every entity within an in-scope group is actually taxed. The Federal Tax Authority’s Excluded Entities and Investment Entities Guide (TTGEIE1), published in August 2026, sets out exactly which entities fall outside the charging provisions of the UAE’s Top-up Tax legislation, and getting this classification wrong can mean unnecessary registration, incorrect filings, or a missed exemption worth pursuing.
This guide breaks down Excluded Entities and Investment Entities under UAE Top-up Tax in plain terms, so you know exactly where your entity stands before your next Pillar Two filing deadline.
What Is UAE Top-up Tax and Why Does Entity Classification Matter?
The UAE’s Top-up Tax on Multinational Enterprises was introduced through Cabinet Decision No. 142 of 2024, with its Qualifying Domestic Minimum Top-up Tax (“QDMTT”) Legislation applying to Fiscal Years beginning on or after 1 January 2025. It closely mirrors the OECD’s Pillar Two Model Rules, and Ministerial Decision No. 96 of 2026 formally adopted the Consolidated Commentary to those rules for interpretation purposes in the UAE.
The QDMTT Legislation only applies to Constituent Entities that are members of an in-scope MNE Group. However, certain entities, known as Excluded Entities, fall outside the definition of a Constituent Entity altogether. This means they:
- Are not subject to UAE Top-up Tax registration
- Do not need to file a Top-up Tax Return
- Do not need to file a Pillar Two Information Return
- Have their profits, losses, taxes accrued, tangible assets, and payroll expenses removed from Top-up Tax computations
Separately, Investment Entities, while not automatically excluded, also fall outside the UAE Top-up Tax charging provision if certain ownership and activity conditions are met.
Importantly, an Excluded Entity under the QDMTT Legislation is not the same as an Exempt Person under the UAE Corporate Tax Law. There is overlap, but each status must be assessed independently.
The Six Types of Primary Excluded Entities
The QDMTT Legislation identifies six categories of “primary Excluded Entities”:
Governmental Entity: wholly government-owned, non-commercial bodies fulfilling a government function
International Organisation: intergovernmental bodies comprised primarily of governments, holding headquarters-style privileges, whose income cannot benefit private persons
Non-profit Organisation: entities operated exclusively for charitable, religious, scientific, educational or similar purposes, with no private ownership interest and strict restrictions on asset distribution
Pension Fund: entities established to administer retirement benefits, including regulated and certain unregulated funds, plus qualifying Pension Services Entities
Investment Fund that is a UPE: an Investment Fund that is the Ultimate Parent Entity of the MNE Group
Real Estate Investment Vehicle that is a UPE: a widely-held, predominantly property-holding vehicle achieving a single level of taxation, that is the UPE of the MNE Group
Each of these carries detailed conditions. For example, a Non-profit Organisation must meet six separate tests, purpose and activity, tax-exempt status, no private ownership, restrictions on income distribution, restrictions on asset transfer on wind-up, and a bar on unrelated commercial activity. Missing even one condition disqualifies the entity.
Secondary Excluded Entities: When a Subsidiary Also Qualifies
Primary Excluded Entities often operate through subsidiaries for regulatory or commercial reasons. The QDMTT Legislation extends Excluded Entity status to these subsidiaries, called secondary Excluded Entities, under two routes:
First type (95% ownership threshold)
An entity qualifies where at least 95% of its value is owned, directly or through a chain of Excluded Entities, by one or more primary Excluded Entities (excluding a Pension Services Entity), and the entity:
- Operates exclusively or almost exclusively to hold assets or invest funds for the primary Excluded Entity’s benefit, and/or
- Only carries out activities ancillary to the primary Excluded Entity’s own activities
Second type (85% ownership threshold)
An entity qualifies where at least 85% of its value is owned by one or more primary Excluded Entities, provided substantially all of its income is Excluded Dividends or Excluded Equity Gains or Losses excluded from the Pillar Two Income or Loss computation.
A key practical point: the 95%/85% thresholds are measured by reference to the value of ownership interests issued, not the number of shares held or voting rights. Preferential shares with limited economic rights can distort this calculation significantly, so the value test needs careful modelling before you conclude an entity is (or is not) excluded.
Entities Wholly Owned by a Non-profit Organisation
A separate provision allows an entity to be treated as an Excluded Entity where it is 100% owned, directly or indirectly, by one or more Non-profit Organisations, and three cumulative conditions are met:
The ownership condition: 100% value ownership by Non-profit Organisation(s)
The non-Excluded Entities revenue condition: the MNE Group’s consolidated revenue, excluding the Non-profit Organisation and its secondary Excluded Entities, is under EUR 750 million
The percentage condition: revenue from non-Excluded Entities is less than 25% of the MNE Group’s total revenue
Unlike the standard secondary Excluded Entity tests, there is no activities test here — meaning even a fully commercial subsidiary can qualify, provided the ownership and revenue thresholds are satisfied.
The Election Not to Be Treated as an Excluded Entity
Not every business wants Excluded Entity status. A Filing Constituent Entity can make a Five-Year Election to treat a secondary Excluded Entity (or an entity held by a Non-profit Organisation) as a Constituent Entity instead — bringing it back into scope for UAE Top-up Tax and registration.
This election:
- Applies on an entity-by-entity basis
- Locks in for five Fiscal Years once made (and, if revoked, cannot be remade for the following four years)
- Must be made by the Domestic Designated Filing Entity where one is appointed
Groups sometimes make this election deliberately, for example, where bringing an entity into the Top-up Tax base allows access to reliefs, credits, or a more favourable overall Effective Tax Rate blend across the jurisdiction.
What Are Investment Entities Under UAE Top-up Tax?
Investment Entities are a distinct category from Excluded Entities, though the two frequently overlap. An Investment Entity means:
An Investment Fund, Real Estate Investment Vehicle, or Insurance Investment Entity
- An entity at least 95% owned, directly or through a chain, by one of the above, operating exclusively or almost exclusively to hold assets or invest funds for their benefit
- An entity where at least 85% of its value is owned by one of the above, provided substantially all of its income is Excluded Dividends or Excluded Equity Gains or Losses excluded from Pillar Two Income or Loss
Where an Investment Fund or Real Estate Investment Vehicle is the UPE of the MNE Group, it is treated as a primary Excluded Entity. Where it is not the UPE, it is instead classified as an Investment Entity, and while it still falls outside the UAE Top-up Tax charging provision, its financial attributes may be picked up in calculations relating to its Constituent Entity owners if certain elections (Investment Entity Tax Transparency or Taxable Distribution Method) are made further up the ownership chain.
Insurance Investment Entities deserve a special mention. An entity that would otherwise meet the Investment Fund or Real Estate Investment Vehicle definition, except that it exists to cover liabilities under an insurance or annuity contract, and is wholly owned by regulated insurance companies within the same MNE Group, also qualifies as an Investment Entity, even though the usual “pooled from unconnected investors” or “widely held” tests are effectively overridden.
Practical Effects: What Changes If Your Entity Is Excluded?
For businesses operating in the UAE, correctly identifying Excluded Entity or Investment Entity status has three concrete consequences:
- No charging provision applies: the entity is outside UAE Top-up Tax entirely
- No administrative burden: no FTA registration, no Top-up Tax Return, and no Pillar Two Information Return filing obligation for that entity
- Revenue still counts toward the EUR 750 million threshold: even though the entity itself is excluded, its consolidated revenue still counts when testing whether the wider MNE Group is in scope of UAE Top-up Tax in the first place
A common misconception is that an excluded structure means the group can ignore Pillar Two reporting altogether. In practice, a Pillar Two Information Return is still required for the MNE Group, and it must disclose the group’s overall corporate structure, including every Excluded Entity and Investment Entity, even though their income, tax, and asset figures are stripped out of the substantive computation.
Why This Matters for Your Business
Misclassifying an entity under the UAE’s Top-up Tax rules carries real commercial risk. Treating a taxable Constituent Entity as excluded can trigger late registration penalties and incorrect Top-up Tax computations further down the ownership chain. Conversely, failing to identify a genuine Excluded Entity or Investment Entity means unnecessary compliance costs, avoidable registration, and administrative overhead your business simply does not need to carry.
Given the technical thresholds involved, value-based ownership tests, “substantially all” income tests with no fixed percentage, and interactions with Corporate Tax exemptions such as Qualifying Public Benefit Entities and Qualifying Investment Funds, this is not an area to assess without proper legal and tax advice.
Frequently Asked Questions
Is an Exempt Person under UAE Corporate Tax automatically an Excluded Entity for Top-up Tax?
No. While there is overlap, for example, a Qualifying Public Benefit Entity is likely to meet the purpose and activity criteria of a Non-profit Organisation, each status is assessed independently under its own legislation. An entity must self-assess against the QDMTT Legislation regardless of its Corporate Tax position.
Does a Permanent Establishment of an Excluded Entity also qualify as excluded?
Yes, where the Main Entity is a primary Excluded Entity, its Permanent Establishments are also treated as Excluded Entities. For secondary Excluded Entities, the activities of all Permanent Establishments must be considered together when testing whether the ownership and activities conditions are met.
Can a Real Estate Investment Trust (REIT) qualify as a Real Estate Investment Vehicle?
Potentially, but this depends on whether the REIT achieves a single level of taxation in line with the QDMTT Legislation’s definition. Where a REIT is an Exempt Person under the Corporate Tax Law, its investors may still be taxed on a portion of Immovable Property Income, and further OECD guidance is expected on how this interacts with the single level of taxation condition.
How long does the election not to be an Excluded Entity last?
It is a Five-Year Election. Once made, it cannot be revoked for the election year or the following four Fiscal Years, and if revoked, a new election cannot be made for the four years after that.
Get Expert Guidance on UAE Top-up Tax Classification
Determining whether your entity qualifies as an Excluded Entity or Investment Entity under UAE Top-up Tax requires careful analysis of ownership value, income composition, and activity tests, all against a fast-moving regulatory backdrop. Getting it wrong is costly; getting it right can remove entire entities from your compliance burden.
Tax Gian’s corporate tax and transfer pricing specialists can review your group structure, confirm your Top-up Tax and Pillar Two obligations, and handle your FTA registration and filings end to end. Contact Tax Gian today for a consultation on your UAE Top-up Tax and DMTT position.
