Direct Tax

Economic Substance Regulations: UAE

With the focus on Business core activities, new legislation “Federal Cabinet Resolution No. 31 of 2019 specifying the requirements of actual economic activities” was published and will be required to produce the report as a piece of evidence that the substantive economic activities undertaken in UAE.

Applicability:

Every business within the UAE (Including free zone or financial free zones like Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC)).

Economic Substance Test:

Following parameters must be achieved to substantiate economic activity within the UAE

Relevant Activities* conducted in the UAE
Management and Decision making from within UAE
Qualified full-time Employees Resource present in UAE
Adequate Operating Expenses incurred within UAE
Adequate Physical Assets
Control over the Relevant Activities* outsourced

* Relevant Activities consist of Banking Business, Insurance Business, Investment Fund Management Business, Lease-Finance Business, Headquarters Business, Shipping Business, Holding Company Business, IP Business, and Distribution & Service Centre Business.

Compliance:

Every Business needs to notify the following details on an annual basis:

Carrying on Relevant Activity or not
All or any part of the income from Relevant Activity is subject to tax in other countries
Date of Financial year ending

Businesses carrying out relevant activity need to submit an annual report, within 12 months of the end of its fiscal year, with a long list of information.

Fines for Non-compliance:

Non Compliance	Amount (AED)
– Failure to meet the Economic Substance Test (First Time)	10,000 to 50,000
– Failure to meet the Economic Substance Test (Subsequent Time)	50,000 to 300,000
– Failure to provide information or inaccurate information	10,000 to 50,000

Further, details of non-compliant shall be reported to the Ministry of Finance (MOF) for onward exchange of information with the Tax Authority of the parent company or beneficial owner.

How MBG can help