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Economic Substance Regulations in UAE

Background

The United Arab Emirates Cabinet recently issued resolution that requires all UAE entities to maintain an economic substance. Economic Substance Regulation was introduced by the UAE government in order to align the entire region with global standards set by the Organization for Economic Cooperation and Development (OECD) Forum on Harmful Trade Practices with  prevention of Base Erosion and Profit/Income Shifting (BEPS). According to FHTP, a company should perform substantial business activities in a jurisdiction. The UAE was added to the European Union list of non-cooperative tax jurisdictions by the European Commission, which is the reason for the issuance of the economic substance regulations.

UAE Economic Substance Regulations are similar to the economic substance requirements that were recently implemented in jurisdictions that include Cayman Islands and Jersey.

Applicability

Economic substance regulation will be applicable to onshore and offshore that engage in any of the below mentioned “Relevant Activities”

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Banking Businesses

relevant2

Insurance Businesses

relevant3

Investment Fund Management Businesses

relevant4

Lease-Finance Businesses

relevant5

Intellectual Property Businesses

relevant6

Holding Company Businesses

relevant7

Distribution and Service Centres Businesses

relevant8

Shipping Businesses

Penalty

In case the business entity has not earned any income from the mentioned relevant activities in the financial period, it does not have to file for any economic substance declaration.

If the business entity meets the specified requirements but fails to comply with the regulations, then they will have to pay a penalty ranging from AED 10,000-50,000.

If the regulatory authority determines that an entity is not meeting the Economic Substance Test repeatedly, a penalty between AED 50,000-300,000 may be imposed. The authority may also suspend, revoke or deny the renewal of the company’s license.

Penalty

HBC can help with its Check-up and Compliance routine

We are one of the leading accounting and auditing firms in UAE and can help in checking up your applicability of ESR and compliance related requirements. Also helping you with the Ongoing ESR compliance and business readiness for the ESR:

1

ESR requirements

Reviewing your activities against ESR requirements. Whether you are compliant or not.

2

Compliance Check

If you are carrying out any business activity covered under ESR, will review the economic substance, make a report and guide you to meet the ESR compliance.

3

Filing of ESR

After reviewing all reports from ESR perspective, will file all relevant documents and reports to concerned authority before deadlines.

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