Economic Substance Regulation- UAE

Why ?

The UAE introduced Economic Substance Regulations to honour the UAE’s commitment as a member of the OECD Inclusive Framework on BEPS, and in response to a review of the UAE tax framework by the EU which resulted in the UAE being included on the EU list of non-cooperative jurisdictions for tax purposes (EU Blacklist). The issuance of the Economic Substance Regulations on 30 April 2019 (the Regulations), and the subsequent release of the Guidance on the application of the Regulations on 11 September 2019, was a requirement for the removal of the UAE from the EU Blacklist on 10 October 2019. The purpose of the Regulations is to ensure that UAE entities that undertake certain activities (see question 4) are not used to artificially attract profits that are not commensurate with the economic activity undertaken in the UAE.

Who is subject to the Regulations?

The Regulations apply to UAE onshore and free zone companies, branches, partnerships, and other UAE business forms (referred to as Licensees) that carry out any of the following Relevant Activities. 

● Banking Businesses

● Insurance Businesses

● Investment Fund Management Businesses

● Lease-Finance Businesses

● Headquarter Businesses

● Shipping Businesses

● Holding Company Businesses

● Intellectual Property Businesses

● Distribution and Service Centre Businesses

Who needs to notify and by when?

Licensees that undertakes a Relevant Activity (irrespective of whether the Licensee qualifies for an exemption under the Regulations or has earned income from the Relevant Activity during the relevant financial period) need to submit a simple notification with its Regulatory Authority. Notifications for the financial period 2019 can be filed on or after 1 January 2020 and before the Deadline specified by the Relevant Regulatory Authority.  Most of the Authorities set the notification deadline as 30 June 2020.

Who needs to file an economic substance return and by when?

Only Licensees that earn income from a Relevant Activity during the relevant financial period and that are not exempt from the Regulations are required to demonstrate economic substance in the UAE and file an economic substance return. Economic substance returns must be filed within 12 months from the end of the relevant financial period.

Any penalties for non-compliance?

Penalties ranging from AED 10K to 300K may be applied for various non-compliance instances and Trade / commercial licence could be suspended, withdrawn or not renewed.

What Team Authentic Offers to its clients?

We at Authentic provides end to end bespoke accounting and tax solutions to our clients.  During this new phase of Regulations we help our clients in understanding and navigating through the whole process from the basic ESR testing to the Economic Substance Return.  For support please contact our office via our regular contact options, but in case you need personalized support please contact our relationship manager on +97156 5484635

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