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UAE Economic Substance Regulation Update: ADGM Guidance 3/02/2020

As seen in Gulf News
Have you set up your company in line with the new UAE economic substance rules? If you have not yet, do it now – because if the looming deadline passes, be prepared to pay a hefty fine!

On the 3rd of February 2020, the Abu Dhabi Global Market (ADGM) presented its views on ESR, in presence of the UAE Ministry of Finance to clarify the impact of ESR on the ADGM structures.

  • An entity will be considered as a “Licensee”, during a relevant financial period, in respect of ESR and then fall under ESR scope if it conducts a Relevant Activity.
  • Not being a licensee, the entity will not fall within ESR scope: It will then not be required to notify its Regulatory Authority and to submit an Economic Substance Return during this financial period.
  • Being a licensee conducting a relevant activity without generating income during a financial period, the entity will be required to notify its Regulatory Authority for conducting a relevant activity but will not have to submit an Economic Substance Return during this financial period. Examples: ADGM Foundations, SPVs holding-income generating assets (private assets, real estate property not being rented out…).
  • A Holding Company Business as per ESR (i.e. pure equity holding company) using a Flexi-desk or registered address provided by a service provider should fulfill ESR requirements for a Holding company Relevant Activity which may not be the case for other Businesses carried out other Relevant Activities.

In brief

If you conduct business in the UAE or hold shares in a UAE entity, whether or not you operate a relevant activity, we strongly recommend that you audit your corporate structure to upgrade it by reaching an adequate level of economic corporate substance.

UAE entities need to implement their self-assessment to determine whether they are in the scope of the new Economic Substance legislation by undertaking in this respect a 3 steps review procedure:

  • Is the UAE entity a Relevant Entity?
  • Is it generating income from a Relevant Activity?
  • Is it meeting the Economic Substance Requirements? Is it able to pass the Economic Substance Test?

Penalties will be applied for non-compliance:

  • Administrative financial penalties (up to AED50,000 for the first failure to meet the economic substance test, failure  to provide information or provision of inaccurate information to Regulatory Authority and up to AED300,000 for the second time failure)- a statute of limitation of 1year or 6 years
  • exchange of information with the foreign tax authorities of the states where their parent company, ultimate parent company and UBO’s are resident
  • refusal to renew, suspension or revocation of entities ‘licenses

The authorized personnel of the Regulatory Authority may at any reasonable hour enter Business Premises to examine and take copies of any Business Document located there.

How can we assist you?

Wincore Advisory Group can assist you in this regulatory self-assessment to fulfill your compliance with legal responsibilities by:

  • to get a clear view of the new regulations and your entity’s categorization
  • reviewing internal corporate governance, Management information system and ESR criteria fulfillment
  • implementing the most cost & time effective compliant (implementing contractual and delegation arrangements) strategy to help you pass the economic substance test
  • providing you with corporate secretarial services and fulfilling your needs at the light of the new regulations

Outsourcing this function to the Wincore Advisory Group enables you to meet your obligations in the most efficient way and avoid wasting valuable time and energy in establishing an in-house process.

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Mohammad Rahali

Managing Partner


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UAE Economic Substance Regulation Update: ADGM Guidance 3/02/2020

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