UAE Economic Substance Regulations Update

Further to the introduction of the economic substance regulations (“Regulations”) last year , the UAE Ministry of Finance (“MoF”) recently issued a guide on relevant activities and core-income generating activities (“Relevant Activities Guide”). The issuance of the Relevant Activities Guide follows the issuance of guidance on the economic substance requirements and the publication of FAQs by the MoF and the issuance of the cabinet resolution on determining regulatory authorities.

Relevant Activities Guide – Highlights

In the Relevant Activities Guide, the MoF has clarified that businesses should look beyond the commercial activities mentioned in the license or registration document in assessing whether they are carrying out a relevant activity.

Further, the MoF has indicated that core income generating activities (“CIGAs”) are activities that are of central importance to the licensee for the generation of gross income from its relevant activity.

The Relevant Activities Guide provided certain examples on CIGAs in respect of each relevant activity.

Deadline – Notification Filing

In addition to the obligation to submit an annual report, licensees are also required to notify their relevant regulatory authority on an annual basis as to whether they are carrying out a relevant activity. Previously, some regulatory authorities had announced deadlines for the filing of the notification. In light of the current COVID-19 situation, a few of these deadlines were extended.

We have outlined below the status of the notification filing deadline as announced by various regulatory authorities:

What should you do next?

As the notification deadlines announced by many regulatory authorities are imminent and the first economic substance report is required to be submitted by 31 December 2020, there is very limited time for companies to assess the impact of the Regulations on their businesses. Any changes necessary to the operating models will also be required to be made before the submission of the first report in order to be compliant.

It is therefore critical for businesses in the UAE to commence preparations immediately and understand whether they are carrying out a relevant activity from a UAE economic substance perspective and consider whether any restructuring of its business operations should be undertaken to satisfy the economic substance test.

The failure to comply with statutory obligations under the Regulations has serious consequences and may result in the disclosure of the licensee’s information to foreign authorities, the imposition of an administrative penalty ranging from AED 10,000 up to AED 300,000 and the revocation, suspension or non-renewal of the existing license.

How can we help?

As the largest law firm in the Middle East and with strong corporate structuring and tax expertise and significant corporate structuring and tax experience across all industry sectors in the Middle East, we are well placed to assess the impact of the Regulations to your business, recommend and implement any changes required to your business structure to satisfy the economic substance test and assist you to comply with your notification and reporting obligations.

Please do not hesitate to contact Al Tamimi’s Corporate Structuring Team and Tax Team if you require any assistance.

Click here to follow Al Tamimi’s Tax Team’s LinkedIn page for more updates on tax developments in the Middle East.

Key Contacts:

Izabella Szadkowska
Partner, Corporate Structuring
i.szadkowska@tamimi.com

Shiraz Khan
Head of Taxation, Corporate Commercial
s.khan@tamimi.com