Cabinet Resolution No.57 of 2020, which included the requirement for UAE enterprises to maintain an adequate “economic presence” in the UAE in relation to the activities they carry out, came into effect in April 2019. The Regulations, which were modified in August 2020, were implemented in April 2019.
Economic substance criteria apply to all UAE onshore and free zone enterprises, as well as certain other business types, for fiscal years beginning on or after January 1, 2019. These criteria apply to all UAE onshore and free zone enterprises, as well as certain other business types, that participate in one or more “Relevant Activities” in the UAE.
Entities that fulfil the requirements to be deemed “exempt” are prevented from demonstrating their commercial presence in the United Arab Emirates. Such organisations must submit a Notification with the IRS and give all necessary information in order to maintain their exemption status.
This move brings the UAE into line with other jurisdictions that have recently passed economic substance legislation (e.g., the Cayman Islands and Bermuda), and it demonstrates the UAE’s determination to address concerns about profits derived from certain mobile business activities being transferred to “no or nominal tax jurisdictions” without resulting in equivalent local economic activity.
Companies operating in the United Arab Emirates are required to determine whether or not the economic substance law applies to their operations, as well as which of their operations are covered by the law, and how they will ensure that the economic substance standards for each Relevant Activity are met. In this qualitative and quantitative investigation, a variety of topics, including those pertaining to operations, finances, taxation and transfer pricing, legal matters, and governance, are taken into consideration.
A leading provider of assurance, tax, and legal services as well as business consulting services in the UAE, KGRN is well-suited to assisting you with the determination of whether the UAE substance criteria apply to your business/entities and how to ensure that you have the necessary economic substance in the UAE.
You may now use our new Economic Substance Regulation online tool to finish your application.
Need assistance drafting your Economic Substance Report in order to submit it on time? Contact us. Make use of our free KGRN Economic Substance Reporting (ESR) Tool to do any of the following:
- In pdf format, you can see your recommended responses to all of the questions in the Economic Substance Report, which will allow you to interpret them and obtain internal approvals before submitting them for formal completion on the Ministry of Finance’s web site, which is expected to be available in December.
- Understanding what information and supporting paperwork you will need to submit/upload in advance is essential; and
- Using our established techniques and databases/information, we can identify gaps and potential areas of risk in your company’s ability to meet the Economic Substance Tests (ies).
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