The Ministry of Finance has released a directive (Ministerial decision No. 215) which aims to provide more details regarding the implementation of economic substance requirements in UAE.
The guidance has been eagerly awaited since UAE economic substance regulations were introduced on 30th April 2019, requiring all relevant UAE entities (“Licensee”) that carry on certain activities (“Relevant Activities”) to have demonstrable economic substance in the UAE from 30th April 2019.
This is a huge change to the how the system has operated thus far, but follows on from a number of other jurisdictions introducing similar substance measures. UAE is making positive progress towards meeting the European Union’s requirements in order to be removed from the EU list of “non-cooperative jurisdictions for tax purposes”.
We have gone through the directive and highlighted the following points, which should be of interest to anyone with a UAE based company, or financial interests in UAE;
- The new regulations will apply to “any natural or juridical person licensed by the competent licensing authority/(ies) in the UAE, to carry out a Relevant Activity in the UAE including a Free-Zone and a Financial Free Zone”. This confirms that ALL Free-Zones in UAE will be affected, including Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM).
- If a company derives income in UAE, it is considered in-scope; therefore any Jebel Ali Free Zone Authority (JAFZA) Offshore structures holding a property in UAE will be affected.
- A Holding Business Company has reduced requirements- they will not need to have core income generating activity (CIGA) inside UAE.
- Reporting to the Relevant Authority begins from 1st January 2020. The authority will then have 6 months to evaluate the submission.
- At least one meeting a year with all the Directors of a Licensee present in UAE is required to satisfy place of effective management (POEM) conditions.
- All records and information should be submitted in English.
- Outsourcing certain economic substance requirements to providers (such as Alpha Management) is permitted.
Anyone that has a UAE based structure will need to take stock of several factors going forward. Does the company perform a Relevant Activity? If so, does it have a core income generating activity in UAE? Are there adequate staff/premises to justify the amount of activity? Where is the place of effective management? Are the Directors fulfilling their obligations?
While we hope for more guidance in the future, it is imperative that anyone affected start to consider these questions. Alpha Management can assist clients in evaluating the current state of their company, and providing solutions (including outsourcing) to make sure that they are compliant with Economic Substance Regulations in UAE. Please contact us for more details.