UAE New Economic Substance Rules

As part of the UAE’s commitment as a member of the OECD Framework and in response to an assessment of the UAE’s tax framework by the European Union (“EU”) Code of Conduct Group on Business Taxation, the UAE introduced a Resolution on the Economic Substance (Cabinet of Ministers Resolution No.31 of 2019, the “Regulations”) on 30 April 2019. The Regulations requires all forms of companies that carry out any of the “Relevant Activities” listed below to maintain an adequate “economic presence” in the UAE relative to the activities they undertake:

• Banking Business
• Insurance Business
• Investment Fund management Business
•  Lease - Finance Business
• Headquarters Business
• Shipping Business
• Holding Company Business
• Intellectual property Business (“IP")
• Distribution and Service Centre Business

The provisions of the Regulations shall not apply to Companies which are owned and governed by any government body or any of them having at least 51% direct or indirect ownership in their share capital. The Ministry of Finance made it very clear that they would be adopting a “substance over form” approach when considering whether a business was conducting one or more of the Relevant Activities. Failure by an entity to comply with the Regulations shall result in administrative penalties amounting from AED 10,000 to AED 400,000. Our legal team will help entities that are performing the Relevant Activities and submit the following requirements as per the Regulations:

1. 1. Notification - A Notification to their Regulatory Authority (defined under Cabinet Decision No (58) of 2019) on or after January 2020; and
   2. Reporting - Prepare and submit to the same Regulatory Authority an economic substance declaration (filling a Report) within 12 months from the end of their financial year (e.g. Report to be submitted by 31 December 2020 for entities with a financial year ending 31 December 2019).

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