Excluded From Top-up Tax Still Means Counted

The Federal Tax Authority issued TTGEIE1, its Top-up Tax guide on Excluded Entities and Investment Entities, in August 2026. It is the guide that answers a question many groups have been answering for themselves: whether a fund, a pension vehicle, a charity or the companies beneath them fall outside the UAE's Domestic Minimum Top-up Tax at all.

The short answer is that exclusion is narrower than it sounds, and that it is a status with conditions rather than a category you belong to.

The five primary Excluded Entities

The guide lists the entities classified as primary Excluded Entities under the QDMTT Legislation.

1. An International Organisation.
2. A Non-profit Organisation.
3. A Pension Fund.
4. An Investment Fund that is the Ultimate Parent Entity of an MNE Group.
5. A Real Estate Investment Vehicle that is the Ultimate Parent Entity of an MNE Group.

One point is worth flagging carefully. The guide defines Governmental Entity in its definitions section, with a four-limb test covering government ownership, principal purpose, accountability and other criteria — but a Governmental Entity does not appear in this list of five primary Excluded Entities. Anyone reasoning from the international model rules, where a governmental entity heads the equivalent list, should confirm the position for their own facts rather than assume it carries across.

What each of the three non-fund categories actually requires

An International Organisation means an intergovernmental or supranational organisation, or a wholly-owned agency of one, meeting three criteria together: it is comprised primarily of governments; it has a headquarters or substantially similar agreement in force with the jurisdiction where it is established; and law or its governing documents prevent its income inuring to the benefit of private persons. On the first, the guide says the entity must be formed of at least two governments of different jurisdictions.

A Non-profit Organisation must be established and operated in its jurisdiction of residence exclusively for religious, charitable, scientific, artistic, cultural, athletic, educational or similar purposes — or as a professional organisation, business league, chamber of commerce, labour organisation, agricultural or horticultural organisation, civic league, or an organisation operated exclusively to promote social welfare. Substantially all of the income from those activities must be exempt from income tax where it is resident, and it must have no shareholders or members with a proprietary or beneficial interest in its income or assets.

A Pension Fund is an entity established and operated in a jurisdiction exclusively or almost exclusively to administer or provide retirement benefits and ancillary or incidental benefits to individuals, where either it is regulated as such by that jurisdiction, or the benefits are secured or otherwise protected by national regulations and funded by a pool of assets held through a fiduciary arrangement to secure the pension obligations against insolvency of the group. The definition also takes in a Pension Services Entity — which becomes important in a moment.

Secondary Excluded Entities: 95% or 85%, depending on why they exist

The legislation extends exclusion to certain entities owned by primary Excluded Entities, on the basis — as the guide puts it — that a primary Excluded Entity may need to operate through other entities for regulatory or commercial reasons. There are two types, and they are tested differently.

The first type is an entity where at least 95% of its value is owned, directly or through a chain of Excluded Entities, by one or more primary Excluded Entities, and which either operates exclusively or almost exclusively to hold assets or invest funds for their benefit, or only carries out activities ancillary to theirs, or both. Two tests must be met: an ownership test and an activities test.

The second type is an entity where at least 85% of its value is so owned, and substantially all of whose income consists of amounts excluded from the computation of Pillar Two Income or Loss — Excluded Dividends or Excluded Equity Gains or Losses. Here the two tests are ownership and income. The guide is explicit that the ownership guidance is the same as for the first type, with the threshold lowered from 95% to 85%.

Subsidiaries of a Non-profit Organisation: three conditions, no activity test

A separate provision treats entities held by Non-profit Organisations as Excluded Entities where three conditions are all met.

1. 100% of the entity's value is owned, directly or indirectly, by one or more Non-profit Organisations.
2. The aggregate revenue of the group of which the entity is a member is less than EUR 750 million, if the revenue of the Non-profit Organisations and secondary Excluded Entities is ignored.
3. The revenue of the entity, and of all other entities that are neither Non-profit Organisations nor secondary Excluded Entities, is less than 25% of the revenue of the MNE Group.

The guide makes a point of what is absent: there is no activity test in these conditions, so the actual activities carried out by wholly-owned subsidiaries of a Non-profit Organisation are not relevant. A trading subsidiary is not disqualified by trading. It is the revenue proportions that decide the question.

The guide also addresses an entity that falls within both the Non-profit Organisation and Governmental Entity definitions, and confirms its wholly-owned subsidiaries can still apply this provision.

You can elect out of being excluded, for five years

Exclusion is not compulsory. A Filing Constituent Entity may elect not to treat as an Excluded Entity either an entity meeting the secondary Excluded Entity conditions, or an entity wholly owned by one or more Non-profit Organisations that meets the conditions above.

One practical detail makes the election more usable than it first appears: it applies entity by entity. The guide's own example is a Domestic Main Group with two secondary Excluded Entities, where an election can be made for just one of them. The election does not have to cover both.

Investment Entities are a different question with a different answer

An Investment Entity is defined separately, and covers an Investment Fund, a Real Estate Investment Vehicle or an Insurance Investment Entity; an entity at least 95% owned directly by such an entity or through a chain of them, operating exclusively or almost exclusively to hold assets or invest funds for their benefit; and an entity where at least 85% of its value is owned by such an entity.

The consequence is worth separating from exclusion. The guide states that an Investment Entity which is not an Excluded Entity, but is located in the UAE, is not covered within the charging provision of the QDMTT Legislation. That is a different route to the same practical outcome, reached by a different test — which is exactly why a fund that fails the Ultimate Parent Entity qualifier for primary exclusion should not be written off.

The guide also names what it does not cover, and those exclusions matter when scoping advice: the election to treat an Investment Entity as a Tax Transparent Entity, the election to apply the Taxable Distribution Method to an ownership interest in an Investment Entity, and the effect of Investment Entities on the de minimis calculation and the Transitional Country-by-Country Reporting safe harbour.

What to check

1. For a fund or real estate vehicle, establish first whether it is the Ultimate Parent Entity — primary exclusion depends on it.
2. Where it is not the UPE, test it as an Investment Entity rather than concluding it is in charge.
3. Map ownership by value, not by share count, against the 95% and 85% thresholds.
4. Check whether any owning entity in the chain is a Pension Services Entity, which breaks the ownership test.
5. For a secondary Excluded Entity of the second type, do not design to a percentage — the income test has no stated threshold.
6. For a Non-profit Organisation's subsidiaries, test the two revenue conditions; the subsidiary's own activities are not part of the test.
7. Where electing out, remember it binds for five years, triggers registration, and is made entity by entity.
8. Confirm who the Filing Constituent Entity is before anyone makes an election on the group's behalf.

TTGEIE1 is guidance rather than legislation, and it was issued in August 2026 — recent enough that positions taken earlier in the year may warrant revisiting. The operative rules are in the QDMTT Legislation. Confirm the position for your own facts before relying on it.