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Economic Substance Regulations For The Mainland Companies In The UAE

03/06/2020

The economic substance regulations are applicable to all the Mainland Companies that are established in the UAE and generate income from a relevant economic sector (termed as Relevant Activity) from January 01, 2019. The scope of Economic Substance Regulations in mainland companies in the UAE excludes such entities in which a minimum of direct investment of 51% is attributed to Government authority.

The purpose of Economic Substance Regulations for the mainland companies in the UAE is to ensure that the proactive measures to address concerns of the EU on shifting of profit. The Economic Substance Regulations for the mainland companies in the UAE is to improve the international competency of the country. The Economic Substance Regulations advisory is provided by ESR Consultants in the UAE who guide the mainland companies to comply with economic substance regulations laid down for the mainland companies.

1. What is the adequate substance under the economic substance regulations for mainland companies?

All the mainland companies with activities and income in a relevant sector in an accounting period will be required to demonstrate that they have adequate substance in the UAE. The adequate substance requirements will generally require that a company –

  • ♦ Is directed and managed in the UAE

  • ♦ Has an adequate number of (qualified) employees

  • ♦ Proportionate to the level of activity carried on in the UAE

  • ♦ Has adequate expenditure proportionate to the level of activity carried on in the UAE

  • ♦ Has an adequate physical presence in the UAE

  • ♦ Conducts core income-generating activity (CIGAs) in the UAE

2. What are the relevant activities defined under the Economic Substance Regulations for the mainland companies in the UAE?

  • ♦ Investment fund management

  • ♦ Lease finance

  • ♦ Headquarter business

  • ♦ Intellectual Property

  • ♦ Holding Company business

  • ♦ Distribution and Service Centre

  • ♦ Insurance

  • ♦ Shipping Business

3. What is the economic substance regulations reporting defined for mainland companies in the UAE?

All the mainland companies that fall under the Economic Substance Regulations in UAE need to notify their respective competent authorities that they undertake a Relevant Activity and the notifications need to be filed in the prescribed manner.

All the licensees of the mainland companies that are not exempt and undertake a Relevant Activity which they earn income from during a relevant Financial Year are required to meet the economic substance requirements. A Relevant Entity in the mainland will be required to report certain information on its Relevant Activities on an annual basis to the relevant regulatory authority.

Existing entities in the mainland refer to an entity with an existing trade license in the UAE on the effective date of the Regulations, being 30 April 2019. It must comply with the regulations from 30 April 2019, with the first return due in 2020

New entities in the mainland refer to an entity that receives a trade license on or after the effective date of the Regulations, being 30 April 2019. It must comply with the Regulations upon receiving its trade license, with the first return due in 2020.

4. What are the penalties for failing to file the economic substance regulations return for the mainland companies in the UAE?

Failing to comply with the economic substance regulations in UAE will result in a penalty of not less than AED 10,000 but not exceeding AED 50,000 in the first year, increased to an amount not less than AED 50,000 but not exceeding AED 300,000 in the subsequent year, subject to a six-year limitation period.

Additional penalties such as suspending, revoking, or not renewing the UAE Relevant Entity’s trade license could also apply.

ARC Associates act as an Economic Substance Regulations consultant in Dubai, Abu Dhabi, Sharjah, and all over in the UAE and can assist the mainland companies in the evaluation of relevant activities performed in the year and also in the evaluation of the total income generated from each of the relevant activities in the UAE so as to comply with the Economic Substance Regulations in the Mainland.

ARC Associates as an Economic Substance Regulations Consultant in UAE will also assist the mainland companies in filing the notification to the relevant authority and also to submit the ESR returns on time in order to avoid the penalties.

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