Economic Substance Regulations
Economic Substance Regulations Reporting Assistance
Get Expert Help With Your Economic Substance Compliance Before the Deadline!
File your notifications accurately before the June 30th deadline
- Understand the ESR provisions for your business
- Confirm what Economic Substance Regulations apply to your business
- Get your latest financial statements reviewed by experts
- Get assistance in preparing your Economic Substance Notification & Return
- File your Economic Substance Notification with the relevant authority
- Build an action plan to better achieve Economic Substance Test Parameters
- Avoid fines and penalties
The United Arab Emirates Cabinet of Ministers has issued the Economic Substance Regulations supplemented by guidelines issued on September 11, 2019 which applies to all entities carrying on a Relevant Activity in the UAE, including entities established in Free Zones and Financial Free Zones.
Such entities must exhibit demonstrable Economic Substance as of April 30, 2019 and make reports and notiﬁcations to the Regulatory Authority as from January 2020 and thereafter or will risk ﬁnes and administrative penalties.
From January 1, 2020 onwards, relevant entities within the scope of the Regulations are required to prepare and submit economic substance declarations to their relevant regulatory authority, and may be required to meet an Economic Substance Test.
What has changed?The UAE Ministry of Finance (“MoF”) has published further guidance related to the UAE Economic Substance Regulations, in the form of answers to Frequently Asked Questions.
We explore some of the key themes of the MoF’s guidance below.
Who is subject to the Regulations?
The Regulations apply to all UAE onshore and free zone companies (including in the financial free zones) that carry on and generate income from one of the “Relevant Activities” listed below (Relevant Entities):
• Distribution and Service center
• Fund management
• Holding company
• Intellectual Property (IP)
How does this impact the Relevant Entities?
The Relevant Entities must satisfy the following criteria to meet the Economic Substance Test:
Be directed and managed in the UAE in relation to the activity – the Regulations contain specific requirement on how a company has to be directed and managed in the UAE Conduct core income generating activities in the UAE
Have an adequate number of qualified full-time employees in the UAE
Incur an adequate amount of operating expenditure in the UAE
Hold adequate physical assets in the UAE
There are certain regulations in respect of holding companies whose income and profits are derived only from their equity investments. Additional requirements apply if an entity carries out “high risk IP related activities”.
What does it mean in practice?
Each Relevant Entity must report specified information on its ‘Relevant Activities’ annually to the authority which has issued its trade license to demonstrate that it satisfies the economic substance requirements (this includes, for example, information on the relevant activities such as nature and amount of revenue, expenses, place of business and number of employees with qualifications). Existing entities will have to comply from 20 April 2019 onwards, with the first return due in 2020. New entities must comply with the Regulations upon receipt of their trade licences, with the first return due in 2002 (or later).
Sanctions for non-compliance
Failure to meet the economic substance test and/or to provide information (or providing inaccurate information) results in significant financial penalties, and ultimately, a deregistration. Additionally, the Regulations provide that the UAE authorities may exchange information about non-compliant UAE-registered companies with the tax authorities in the states where their parent companies and UBO’s are resident.
Issuance of executive/implementing regulations
Because the Regulations are of a high-level nature only, it is expected that supplemental regulations or decisions will be issued in due course to set out the detailed application of the Regulations, the reporting requirements and how it will be implemented.
- Entities which are either directly or indirectly owned by the UAE Government (both federal and local) are specifically excluded from the ambit of the Regulations.
WHAT CAPEX CAN HELP YOU WITH:
CAPEX HASSAN AUDITING have an expert team to help you with Economic Substance Regulation.
We will conduct the following steps and approach:
- We will be studying your business activity and find the accessibility of the Economic Substance Regulation
- Also, we will be helping you with filing Economic Substance Regulation with authority
- We will be providing the guidance and support for compliance with the provisions of the Economic Substance Regulation, if your activity is falling under the regulation
- We will conduct Impact Study and Gap Analysis in order to assess whether the Business meets the Compliance test and to provide the recommendations
- We will be reporting with Regulatory Authority on or before the Due Date