UAE Economic Substance Regulations Factsheet
Cabinet Ministers Decision No. 57 of 2020 concerning Economic Substance Requirements (“the Updated Regulations”), and the accompanying Ministerial Decision No. 100 of 2020 on the issuance of Directive for the Implementation of the Provisions of the Regulations, was published on the 2nd September 2020 repealing and replacing Cabinet Decision No. 31 of 2019.
The Regulations provide a revised and detailed description of the requirements that UAE based entities must address and comply with by the end of the year, with specific changes to the requirements for assessing economic substance in the UAE.
- Banking activities
- Insurance works
- Investment fund
- Financial leasing
- Holding company
- Intellectual property
- Distribution & service centre
What entities need to assess the Updated Regulations:
All UAE based entities are required to undertake strict analysis as to whether the Updated Regulations apply as well as to ensure that sufficient supporting documentation and information is prepared ahead of the filing date, 31st December 2020, to evidence exemption, or economic substance, as the case may be.
Some of the most critical updates concern the following:
- Distribution & Service Centre Business
- Exempted Licenses
- National Assessing Authority
- Administrative Penalty
- Exchange of Information
- Assessment & classification
- Corporate services
- Notification & reporting
- Legal advice
- Accounting services
- Physical office space
- Administrative services
- Qualified employees
1. Distribution and Service Centre Business
The Updated Regulations widen the scope of what businesses are deemed to be conducting the relevant activity of Distribution and Service Centre Business, in terms of which expansion many entities that may have been considered exempt will now have reporting requirements.
2. Exempted Licensees
Exemptions to the Updated Regulations are clarified in considerable detail which licensees do not need to satisfy the economic substance test; however, they are required to submit sufficient evidence substantiating their exemption together with their notification. Failure to furnish enough proof may result in a fine.
3. National Assessing Authority
A “National Assessing Authority” has been appointed, the Federal Tax Authority, to implement the provisions of the Updated Regulations. The Ministry of Finance is to launch a portal to facilitate the electronic filing of notifications, reports and other relevant documentation; however, no timeline has been set for the website, and we shall update you once we receive confirmation of its launch.
4. Administrative Penalty
The penalty provisions identified in the Updated Regulations have extended administrative penalties that may be applied against licensees, including the following: A. The fine for failure to submit the requisite notification by the deadline is AED 20,000/-. B. The fine for failure to meet the economic substance test for a financial year is AED 50,000/-.
The National Assessing Authority is also empowered, in some instances, to suspend, revoke or refuse renewal of the license of the licensee.
5. Exchange of Information
The Ministry of Finance is empowered to spontaneously exchange information with the relevant foreign competent authorities in several cases including, but not limited to, where a licensee fails to satisfy the economic substance test or where an entity claims to be tax resident in a jurisdiction other than the UAE.
Various other changes are included in the Updated Regulations, and we advise that our clients conduct a thorough examination as to their UAE businesses economic substance in order to meet the requirements by the deadline.
Senat offers comprehensive solutions that may assist UAE entities in evidencing compliance with, or exemption from, the Updated Regulations. We are able to help with initial consultation, subsequent implementation, as well as operational services
It is therefore imperative that all businesses licensed and operating in the UAE conduct thorough audit and assessment as to whether they are able to satisfy the Updated
Please contact us should you have any questions.
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