The United Arab Emirates has enacted the Economic Substance Regulations (hereafter: ”the Regulations”) on 30th April 2019, which requires companies to have substantial activities in the UAE, taking into account the global standards developed by the OECD and the EU for business taxation to prevent harmful tax practices and to be removed from the EU’s list of non-cooperative tax nations.
The Regulations brings the specific requirements for businesses to demonstrate that their actual economic activity is in UAE and it is not driven solely to benefit from a low or non-tax jurisdiction. Thus, preventing the harmful tax practice of profit shifting from high-tax jurisdiction to low tax regimes.
What is the scope of the Regulations?
The Regulations apply to UAE onshore and free zone companies, including offshore companies, branches, partnerships, and other UAE business forms that carry out “Relevant Activities” (referred as “Licensee”) listed below:
The Regulations applies not only to UAE entities that are part of a foreign multinational group, or that are owned by a foreign shareholder but to any UAE entity which carries on a Relevant Activity, regardless of whether the UAE entity belongs to a foreign multinational group.
Who is exempt under the Regulations?
A UAE entity that is directly or indirectly owned 51 percent or more by the UAE government is exempt from the purview of the Regulations. In this respect, the “UAE Government” includes the UAE Federal Government, as well as governments of any Emirate of the UAE or any government authority or body.
First Reportable Period
The Regulations applies to Licensees with financial year commencing on or after 1 January 2019.
What is substance requirement under the Regulations?
A Licensee operating any of the Relevant Activity shall have economic substance in the UAE only if it fulfils the following economic substance requirements for each of its Relevant Activity in UAE.
What are the compliances to be fulfilled under the Regulations?
The following compliances may be required for companies under the Regulations:
Consequences for not complying with the Regulations
How can Crowe UAE assist you?
Identify whether your business is within the scope of the Regulations by analysing whether the company is a Licensee conducting Relevant Activity in the Reportable Period. We identify the compliance requirements for the company.
If your business is within the scope of the Regulations, to analyse and identify whether the business fulfils the Economic Substance Test under the Regulations and identify the non-compliant aspects if the criteria of the Regulations are not met.
Suggestions and implementation of corrective or preventive corporate actions to fulfil the requirements of the company under the Economic Substance Test.
Assistance in filing the Notification and Substance Return with the relevant Regulatory Authority.
Ongoing review services to ensure ongoing compliance of the company with the Regulations.
 Cabinet of Ministers Resolution No.31 of 2019 concerning Economic Substance Regulations.