What You Need to Know About UAE Economic Substance Regulation?

As a major aspect of the UAE’s responsibility as a party to the OECD Inclusive Framework, and in light of an appraisal of the UAE’s assessment structure by the European Union (“EU”) Code of Conduct Group on Tax on Business, the UAE presented a Cabinet Resolution for Economic Substance by virtue of Cabinet of Ministers Resolution No.31 of 2019 on 30 April 2019. Direction that gives further lucidity on the utilization of the Regulations was given on 11 September 2019. The Regulations require UAE mainland and free zone organizations and other UAE business that conduct relevant activities such as banking, insurance, investment management, shipping, holding companies distribution services and other to maintain a financial presence in relation to the activities they perform. Economic substance guidelines have as of late been presented over the globe in nations with no or ostensible corporate tax rates so as to follow universal activities to battle unsafe tax practices.

Importance of the Regulation

The Regulations give a definition to every one of the above Activities. The arrangements of the Regulations will not have any significant bearing to Companies where the Federal Government of the UAE or the Government of any Emirate of the UAE, or any legislative position or body or any of them has at any rate 51% direct or indirect shareholding in the company. The Regulations apply to monetary years beginning on or from 1 January 2019. Companies that are represented by the Regulations should present a notice to their Regulatory Authority (characterized under Cabinet Decision No (58) of 2019 gave on 4 September 2019) from 1 January 2020 onwards, and shall submit to the equivalent Regulatory Authority an Economic substance declaration within one year from the end of the financial year

An organization isn’t required to meet the economic substance test and record a financial substance presentation for any financial period in which it has not earned money from a Relevant Activity. Any failure by a company to follow the Regulations will bring about authoritative punishments, unconstrained trade of data with the Foreign Competent Authority (as characterized in Article 1 of the Regulations), and potential suspension, repudiation or non-restoration of its enlistment. The Economic Substance Rules require all UAE elements that are inside extent of the Rules to tell the significant administrative power starting January 2020. Inability to do so will bring about punishments of up to AED50,000. Despite the fact that punishments for resistance with the rest of the Rules may not be forced until a later date, organizations that neglect to execute consistence techniques currently will be not able to maintain a strategic distance from those punishments.

The issuance of this regulation has left many businesses wondering, if these rules and regulations applies to them and if it does what steps must be taken by them to adhere with the provisions of this law. In this regard, Corporate Lawyers of Dubai sincerely advise all who fall under the category as mentioned shall reach out for legal assistance to avoid violation of this law.