Economic Substance Regulations in the UAE

Economic Substance Regulations is another compliance requirement for entities registered in the UAE. The United Arab Emirates (UAE) Ministry enacted the Cabinet Resolution no. 31/2019 with effect from 30th April 2019 on Economic Substance Regulations in the UAE. This was followed by the Ministerial Decision 215 for the year 2019 giving directives for the implementation of the provisions of Cabinet Decision no. 31/2019.

One of the four criteria in the framework of OECD, is the absence of a requirement that the activity be substantial. In addition, the European Union is working to have a Tax Governance at Global Level in order to curb the Tax avoidance, evasion. The Economic Substance Regulations is in consonance with the global standard set by Organization for Economic Co-operation and Development (OECD) on Harmful Tax Practices. UAE also joined the all-inclusive framework of OECD on Base Erosion and Profit Shifting (BEPS) and is committed to have the minimum standards in the State. UAE is “No or Only Nominal Tax Jurisdiction” (NOON’s) environment and is in line with other jurisdictions with same environment who are parties to this framework.

Applicability of Economic Substance Regulations in the UAE?

The rule is released on 30th April 2019 and is applicable to all Licensee carrying on the Relevant Activities in the UAE, including the Free Zone or Financial Free Zone; with effect from the year 2019.

What are the Relevant Activities under Economic Substance Regulations in the UAE?

  • Banking Business
  • Insurance Business
  • Investment Fund Management Business
  • Lease-Finance Business
  • Shipping Business
  • Headquarters Business
  • Intellectual Property Business
  • Holding Company Business
  • Distribution & Service Centre Business

Exempt Companies from Economic Substance Regulations in the UAE

Companies in which Government of the State or Government of any Emirate of the UAE or any governmental authority or body of any of them having atleast 51%  direct or indirect ownership in Company’s shareholding.

How to meet Economic Substance Regulation Test?

  • Check whether the entity is directed and managed in the State in relation to that activity.
  • Check whether the entity conducts/ performs Core Income-Generating Activity (CIGA) in the State.
  • Check whether the company employs adequate number of qualified full-time employees or incurs adequate level of operating expenditure and adequate physical assets in the state.
  • If CIGA is conducted by another entity for the relevant licensee, then check whether the Licensee has full control and is be able to monitor the activities of another entity.

How can Emirates Chartered Accountants Group support you for assessment on Economic Substance Regulation in the UAE?

  • To have preliminary check done for your business on the applicability of Law.
  • If it is applicable, then to have checks in place on satisfaction of Economic Substance Criteria’s.
  • If the criteria are not met, then to identify the gaps. Providing suggestions and improvements to ensure the compliance of Law.
  • To assist the Licensee to file Information Notification with the Relevant Authorities.

For Assessment on Economic Substance Regulations in UAE

Contact Person: CA. Manu Nair
Email: manu@emiratesca.com
Mobile:+971 50 282 8727
Contact Person:CA. Dhara Yagnik
Email: dhara@emiratesca.com
Mobile: +971 56 595 6836

 

 

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