Economic Substance Regulation in UAE – Recent Updates and Announcements
 

The inaugural year of Economic Substance Regulations (Regulation) in UAE is proving to be a testing time for most businesses across the UAE. The region which does not have any Income Tax regime to date has introduced a Regulation that seeks to ensure that businesses in the UAE meet the test of substance, which is generally applied by a country to keep a check on the tax avoidance case. Understandably, the Regulations were introduced in response to the European Union’s requirement to remove UAE from the EU Blacklist, i.e., EU list of non-co-operative jurisdictions for tax purposes.

The Regulations are also a part of the UAE's commitment to implement all minimum standards of the flagship BEPS project of the OECD.

Click Here Key highlights of FAQs on Economic Substance Regulations in UAE
Click Here Introduction of Economic Substance Regulations in UAE
    

Compliance requirement

The Regulations require all covered licensees to undertake mandatory compliance as under:     Compliance to be undertaken Due date Notification to be filed   To be notified by Regulatory Authorities (Refer different deadlines announced by different zones below) Report to be filed Within 12 months from the end of Financial Year (i.e., 31 December 2020 for the Year 2019) Failure to follow the above compliances may attract an administrative penalty between the range of AED 10,000 to AED 300,000.

Statutory timelines to furnish notification for the year 2019

Recently, Dubai International Finance Centre (DIFC) has informed its licensees that a notification would be required to be furnished on or before 12 June 2020. Further, DIFC shall release the said notification form on 1 May 2020.   Similarly, most of the other zones within the UAE have also prescribed timelines for furnishing the notification for the year 2019, as below:   Zones/ Licensors Notification Deadline Dubai Airport Free Zone Authority (DAFZA) 3 May 2020 DIFC 12 June 2020 Ras Al Khaimah Economic Zone 30 June 2020 RAK ICC 30 June 2020 Ajman Free Zone 30 June 2020 Dubai Multi Commodities Centre (DMCC) 30 June 2020 Dubai Silicon Oasis (DSO) New deadline not yet issued (earlier deadline of 31 March 2020 was postponed) Jebel Ali Free Zone  New deadline not yet issued (earlier deadline of 31 March 2020 was postponed) Abu Dhabi Global Market (ADGM) New deadline not yet issued (earlier deadline of 31 March 2020 was postponed)

Guidance on Relevant Activities released by Ministry of Finance, UAE

Since the introduction of Regulations, the ministry has been very actively releasing various guidelines and FAQs to enable licensees to test the compliance requirement in their case. Recently, the Ministry of Finance, UAE, has released additional guidance on the 'Relevant Activities' and their associated 'Core Income Generating Activities' (CIGAs) to understand the scope and application of the Regulation.  It has been clarified that additional guidance should be read in conjunction with the Regulation, Frequently Asked Questions (FAQs) and guidance issued earlier.