The ruling applies to all UAE onshore and free zone companies engaged in the following activities:
• Fund management
• Holding company
• Intellectual property
• Distribution and service centre.
To satisfy the economic substance requirements entities must:
• Conduct the relevant "core income generating activities" in the UAE
• Be directed and managed 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.
An entity only undertaking a holding company business will be subject to less stringent economic substance requirements. Additional obligations, however, will apply if an entity carries out IP related activities".
If an entity carries out more than one of the above activities, economic substance requirements must be met for each of the relevant sectors.
The regulations allow a company to outsource some or all of its activity to third-party service providers, however, these service providers must have an adequate presence in the UAE and the company must be able to demonstrate it has adequate supervision of the outsourced activities.
Information must be reported on an annual basis to the relevant regulatory authority (the authority that issued the trade licence) and failure to comply will lead to financial penalties.
Existing entities must comply with the regulations from April 30 2019, with the first return due in 2020. New entities must comply with the regulations upon receiving its trade licence, with the first return due in 2020.
Affected entities should now be assessing the application of legislation, and where appropriate, plan and implement steps to ensure compliance with the substance requirements.
Consideration should be given to:
• Identifying relevant sector companies
• Ensuring appropriate substance requirements are met and documented
• Reflect on operational or structural changes.
These are significant changes and will increase the level of documentation and reporting required.
ILS World is carefully monitoring developments and clients will be contacted in due course to discuss how the new rules will affect them. In the meantime if anyone has any queries please don't hesitate to contact us.
Please note: ILS World does not offer tax advice and would therefore recommend you obtain your own tax advice. If you require an introduction to a tax adviser we would be happy to assist.