Introduction of Economic Substance Regulations in UAE
One more step to make UAE more regulatory and complied with international standards of taxation and reporting as per the requirement of IMF ( International Monetary Fund). On 30 th April 2019, United Arab Emirates Cabinet issued the Cabinet of Ministers Resolution No. 31 of 2019 regarding economic substance regulations in the UAE. The introduction of the Regulations requires relevant UAE entities that perform certain business activities to be able to demonstrate economic substance in the UAE from 30th April 2019
For Complying these regulations, you need to aware about some laws of the regulations. Let’s start with WHO WILL NEED TO COMPLY WITH THE ECONOMIC SUBSTANCE REGULATIONS???
All the Companies in UAE onshore and free zone those are generating income by conducted the following activities are required to comply Economic Substance Regulations:
- Finance and Leasing Business
- Fund Management activity and business
- Bank related business
- Insurance related business
- Holding Company Business
- Headquarters Business
- Intellectual Property
- Distribution and Service Center Business
- Shipping Business
The above mentioned companies has an obligation to annually prepare and submit the Economic Substance report to the regulatory Authority (to be determined by the Cabinet of Ministers resolution). The report is to evidence that the licensee/entity satisfies the requirements and include information on the licensee’s relevant activities such as:
- Nature and amount of revenue
- Place of business
- Number of full time employees with qualifications
- Declaration on satisfaction of economic substance requirements
The Company will need to meet and satisfy that they have effective economic substance in the UAE, by passing the test in relation to the relevant business and activities. A company meets the economic test if it :
- Conducts “ Core income- generating activities” in the UAE
- Is directed and managed in the UAE
- Has an adequate number of full time employees, expenses and physical assets for carrying out the business activity, in the UAE.
Penalty for non filing of Economic Substance Report will be:
- Administrative penalty of not less than AED 10,000 and not exceeding AED 50,000 within first year, increased to not less than AED 50,000 to not exceeding AED 300,000 in subsequent year. Additional penalties may apply for not providing relevant information, suspending, revoking or not renewing the UAE relevant entity’s trade license.
2. The UAE Ministry of Finance will disclose information of the licensee/entity to the foreign authorities in the country of the parent company and the ultimate beneficial owner of the Licensee is resident.
This step of UAE Ministry of Finance will bring more sustainability to the UAE economy and draw the clear picture of the business of Licensee. To know more about Economic Substance Report and your company obligations towards this regulation keep checking our updates for the same.
To prepare your business ready for Economic Substance Report, get the free of cost appointment with Horizon Biz Consultancy experts.