Economic Substance Regulation
Introduction
On April 30 2019, the UAE Cabinet issued Cabinet of Ministers Resolution No. 31 of 2019 concerning Economic Substance Regulations in the UAE (the Regulations), requiring all in-scope UAE entities which conduct certain activities (Relevant Activities mentioned below) to have demonstrable economic substance in the UAE, effective immediately.
What is this in relation to?
The introduction of the Regulation follows the UAE’s firm commitment to comply with the EU requirements and illustrates the UAE’s ongoing efforts to reach the highest standards on taxation including the OECD’s requirements.
How does this impact the Relevant Entities?
The Relevant Entities must satisfy the following criteria to meet the Economic Substance Test:
- Regulation contains specific requirement on how a company has to be directed and managed in the UAE
- Conduct core income generating activities in the UAE
- Have an adequate number of qualified full-time employees in the UAE
- Incur an adequate amount of operating expenditure in the UAE
- Hold adequate physical assets in the UAE
There are certain regulations in respect of holding companies whose income and profits are derived only from their equity investments. Additional requirements apply if an entity carries out “high risk IP related activities”.
Sanctions for non-compliance
Failure to meet the economic substance test and/or to provide information (or providing inaccurate information) results in significant financial penalties, and ultimately, a deregistration. Additionally, the Regulation provides that the UAE authorities may exchange information about non-compliant UAE-registered companies with the tax authorities in the states where their parent companies and UBO’s are resident.
How can Finwisers help you?
Finwisers can help the licensed entities to submit the followings to Regulatory Authority to meet their annual compliance:
- Notification: to the Regulatory Authority with the required information starting from 1st Jan 2020 onwards.
- Report: must have all the required information to be submitted within 12 months after the end of each Financial Year.
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