INTRODUCTION
In March, 2009 UAE was added by the European Union to their blacklist of non-cooperative tax jurisdiction. Due to this in April 2019 the Cabinet Ministers approved resolution No. 31 regarding the Economic Substance Regulations (ESR). As a consequence of these developments, the EU excluded the UAE from its blacklist in October 2019.
UAE entities engaged in specific commercial operations are not used to arbitrarily switch revenues from high tax jurisdictions to low tax jurisdictions where there is no real economic exercise or substance, Economic Substance Regulations are placed to ensure this.
The regulations establish a reporting system for companies and/or licensees engaged in “Relevant Activities.” The following are some of these activities:
A company and/or licensee engaged in one of the aforementioned ‘Relevant Activities’ must do the following as per According to Article 8 of Cabinet Resolution No. 31 of the Ministry of Finance.
Notifying the licencing authority and/or other regulatory control where the business or licensee is enrolled and/or governed.
Economic Substance Return should be submitted to the licensing body and/or other regulatory control in the jurisdiction where the business or licensee is enrolled and/or governed.
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NOTIFICATION
Beginning January 1, 2020, the intimation must be submitted evey year at the time, form, and method authorised by the relevant Licensing and/or Regulatory Authority. In particular, this notification will affirm:
• Whether or not it carries out a related activity;
• Whether or not all or any portion of the company’s gross income in relation to the relevant activity is subject to tax in a jurisdiction outside of the UAE;
• The date of the end of its Monetary Year.
• Other facts may be mandatory by the Licensing and/or Regulatory Authority.
Economic Substance Return
Filing an Economic Substance return is necessary to prove that they pass the economic substance test, if the company or licensee earns money from the relevant activity or activities. To pass the Economic Substance Test, the company or licensee will have to show the following:
• Core Income Generating Activity/activities (CIGA) are conducted in the UAE
• Managed and directed in the UAE
• Adequate expenses, employees and assets have been deployed in the UAE
This legislation permits relating companies to prove that they have a substantial influence in the country. We will determine if either your company is subject to the Economic Substance Laws and notify you of the compliance standards that are set accordingly.
How can we assist?
Our offerings, which include Primary Assessment, will help you determine whether your operations come within the definition of the law. Notifying the regulatory authority on a yearly basis, Comprehensive assessment of the company’s current compliance status, including recommendations for the Economic Substance Test and submission of the Economic Substance Return to the licensing or supervisory authorities.
