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The UAE Economic Substance Regulations: Latest Version

The UAE Economic Substance Regulations: Latest Version

The prime aim of the Economic Substance Regulations (New Regulations) is to provide transparency, uniformity and certainty in the tax regime so as to mitigate BEPS i.e. base erosion and profit shifting in an initiative to remove United Arab Emirates (UAE) from the list of non-cooperative tax jurisdiction/countries of Organization for Economic Co-operation and Development (OECD) and European Union (EU).

The New Regulations shall be applicable on all those companies that conduct economic activities within the UAE. Entities which either holding an existing trade license as on April 30, 2019 or would receive trade license after April 30, 2019 shall comply with New Regulations 2019.

The New Regulations shall be applicable to every United Arab Emirates onshore and free zone companies indulged in economic activities such as:

  1. banking;
  2. investment fund management;
  3. lease-finance;
  4. holding companies;
  5. insurance;
  6. headquarters;
  7. shipping;
  8. intellectual property related businesses; and
  9. distribution and service centers.
  10. Entities carrying out any of the ES Activities, which are directly or indirectly, owned by any government authority or body, are beyond the scope of the New Regulations.

The New Regulations mandates below:

  1. generate income in the UAE;
  2. meeting of Board of Directors and pass resolutions with quorum;
  3. adequate full-time employees to be in the UAE;
  4. incur adequate expenditure on company operations in the UAE;
  5. own adequate physical assets in the UAE;
  6. Companies to provide information in the disclosure information to the Regulatory Authority.

The companies which fail to adhere to the New Regulations shall be subject to AED 50,000 while the first year of operations and AED 300,000 for subsequent years of default.

As a serious initiative in light of the above, His Highness Sheikh Mohammed Bin Rashid Al Maktoum Prime Minister of the UAE issued Resolution of the Cabinet of Ministers No. 31, 2019 related to the Economic Substance Regulations.