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May 15, 2026

Article 9 sets out transitional provisions for MNE Groups entering the Pillar Two regime. It defines how deferred tax assets and liabilities are brought into the system, generally at the lower of the minimum rate or domestic rate. The article provides transitional relief for the Substance-based Income Exclusion, offering higher 'carve-out' rates for payroll and tangible assets between 2025 and 2032. It also includes an exemption for the 'initial phase' of international activity for groups with limited cross-border presence, facilitating a gradual implementation of the global minimum tax rules in the UAE.

Article 9 - Transition rules

Article 9.1. Tax Attributes Upon Transition

9.1.1 When determining the Effective Tax Rate for the UAE in a Transition Year, and for each subsequent year, the MNE Group shall take into account all of the deferred tax assets and deferred tax liabilities reflected or disclosed in the financial accounts of all of the Constituent Entities in the UAE for the Transition Year. Such deferred tax assets and liabilities must be taken into account at the lower of the Minimum Rate or the applicable domestic tax rate. A deferred tax asset that has been recorded at a rate lower than the Minimum Rate may be taken into account at the Minimum Rate if the taxpayer can demonstrate that the deferred tax asset is attributable to a Pillar Two Loss. For purposes of applying this Article, the impact of any valuation adjustment, or accounting recognition adjustment with respect to a deferred tax asset is disregarded.

9.1.2 Deferred tax assets arising from items excluded from the computation of Pillar Two Income or Loss under Article 3, including those that derive from deductions that are not allowed for accounting purposes, must be excluded from the Article 9.1.1 computation when such deferred tax assets are generated in a transaction that takes place after 30 November 2021.

9.1.3 In the case of a domestic or cross-border transfer of assets between Constituent Entities after 30 November 2021 and before the commencement of a Transition Year, the Pillar Two tax basis in the acquired assets (other than inventory) shall be based upon the disposing Entity’s carrying value of the transferred assets upon disposition with the deferred tax assets and liabilities brought into the application of the Pillar Two Rules determined on that basis.

9.1.4 For purposes of Article 9.1.1:

(a) a deemed deferred tax asset from losses that have not been recognised due to an accounting recognition adjustment or valuation allowance, or because the recognition criteria was not met, may be generated;

(b) the deferred tax assets and deferred tax liabilities shall not be subject to any adjustments under Article 4.4.1(a), (b), (c), or (d), or Article 4.4.4, except for the adjustments referred to in Article 9.1.2;