BLOGS

Economic Substance Regulations

Introduction

On 30 April 2019, the UAE Cabinet issued the Cabinet of Ministers Resolution No.31 of 2019 (concerning economic substance regulations in the UAE, “the Regulations”), requiring all in-scope UAE entities (“Relevant Entities”) that carry on certain activities (“Relevant Activities”) to have demonstrable economic substance in the UAE from 30 April 2019.

The Regulations apply to all UAE onshore and free zone companies that carry on a "Relevant Activity".

The following are considered as “Relevant Activities” under the Regulations:

  • Banking
  • Insurance
  • Fund management
  • Lease-finance
  • Headquarters
  • Shipping
  • Holding company
  • Intellectual property (IP)
  • Distribution and service centre.

The UAE entities carrying above mentioned relevant activity, needs to satisfy economic substance test. To satisfy the economic substance requirements in relation to a Relevant Activity, a Relevant Entity must:

  • Conduct the relevant “core income generating activities” in the UAE;
  • Be “directed and managed” in the UAE;
  • With reference to the level of activities performed in the UAE
  • Have adequate number of qualified full-time employees in the UAE
  • Incur an adequate amount of operating expenditure in the UAE
  • Have adequate physical assets in the UAE

Action point

Economic Substance regulation is applicable from 1st January 2019. The companies on which above regulation applicable, has to submit economic substance report to relevant authorities till 31st December 2020 for the year 2019.

Relevant reporting formats, regulation and detailed guidance are yet to be notified by the government.

TRC Pamco will be happy to assist you in making this determination; provide preliminary assessments of your company’s current compliance obligations, and assist with possible future strategies, in response to this new legislation

Please let us know if you have any queries and our team will be happy to schedule a session to address all your queries and requirements.


Feb 20, 2020