The Economic Substances Regulations are another compliance requirement for entities registered in the United Arab Emirates. Ministry of United Arab Emirates (UAE) has approved Cabinet Proposal no. 30 April 2019 to 31/2019 on Economic Substances Regulations in UAE. Subsequently, the Ministerial Decision 215 for the year 2019 was directed to implement the provisions of Cabinet Decision no. 31/2019.
The UAE has introduced a resolution in 2019 (Resolution no. 31 2019) related to economic substances regulation. It was introduced as part of the UAE’s commitment to the Organization for Economic Co-operation and Development (OECD) framework. The UAE is a member state of the OECD.
One of the four criteria in the OECD framework is the absence of a requirement that activity be sufficient. In addition, the European Union is doing tax governance at the global level to avoid tax, prevent evasion. The Organization for Economic Substance Operations conforms to the Global Standard on Tax Practices Harmful to Economic Cooperation and Development (OECD). The UAE also joined the OECD’s all-inclusive framework on Base Erosion and Profit Shifting (BEPS) and is committed to minimum standards in the state. The UAE is an environment of “no or only nominal tax jurisdiction” (NOON) and is consistent with other jurisdictions, which are in the same environment as parties to this framework.
The Regulations require UAE onshore and free zone companies and other UAE trade forms that carry out any of the “relevant activities” listed below to maintain a substantial “economic presence” in the UAE.
Every business within the UAE (including Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC) includes free zones or financial free zones.
Companies in which the government of the state government or any government of the UAE or any government authority or body of any of them has at least 51% direct or indirect ownership of the company.
Ownership
The following criteria must be obtained to certify economic activities within the UAE
The following criteria must be obtained to certify economic activities within the UAE
Whether to carry on relevant activity
Income from the activity may be taxed in other nations.
Financial Year End Date
Businesses carrying out relevant activity are required to submit an annual report within 12 months of the end of their financial year, with a long list of information.
10,000 (AED) to 50,000 (AED)
50,000 (AED) to 300,000 (AED)
10,000 (AED) to 50,000 (AED)
Apart from the above penalties, details of non-compliance will be communicated to the Ministry of Finance (MOF) for exchange of information with the tax authority of the parent company or the tax owner.
