UAE ECONOMIC Substance Update: Regulatory Authorities Identified- Cabinet Resolution No 58 on ESR of 04/09/2019 - WinCore

April 9, 2019by MOHAMMED RAHALI0

Why these new compliance Regulations?

“The UAE introduced Economic Substance Regulations in response to a review of the UAE tax framework by the EU which resulted in the UAE being included on the EU list of non-cooperative jurisdictions for tax purposes (EU Blacklist). The issuance of the Economic Substance Regulations on 30 April 2019 (the Regulations), and the subsequent release of the Guidance on the application of the Regulations on 11 September 2019, was a requirement for the removal of the UAE from the EU Blacklist on 10 October 2019.

The purpose of the Regulations is to ensure that UAE entities that undertake certain activities are not used to artificially attract profits that are not commensurate with the economic activity undertaken in the UAE”and thus havedemonstrable economic substancein the UAE from 30th April 2019.

In respect of the UAE Economic Substance Regulations, the Ministry of Finance (MoF) has determined -in its Cabinet Resolution No. 58- the Regulatory Authorities monitoring each Relevant Activity:

 

Relevant Activities Regulatory Authorities
1.    Banking Business
  1. The UAE Central Bank for banking business regulated by the UAE Central Bank
  2. The Competent authority in Financial Free Zones for banking business carried out therein
2.    Insurance Business
  1. The Insurance Authority for insurance business regulated by the Insurance Authority
  2. The Competent authority in the Free Zonefor insurance business carried out therein
  3. The Competent authority in Financial Free Zones for insurance business carried out therein
3.    Investment Funds Management Business
  1. The Securities and Commodities Authority (SCA) for investment funds management business regulated by the SCA
  2. The Competent authority in Free Zones for the activities of investment funds management carried out therein
  3. The Competent authority in Financial Free Zones for the activities of investment funds management carried out therein
4.    Lease Finance Business
  1. The UAE Central Bank for financial leasing business regulated by the UAE Central Bank.
  2. The Competent authority in Free Zones for the financial leasing business carried out therein
  3. The Competent authority in Financial Free Zones for the financial leasing business carried out therein
5.    Headquarters Business
  1. TheMinistry of Economy for headquarter business regulated by the Ministry
  2. TheCompetent authority in Free Zones for headquarters business carried out therein
  3. The Competent authority in Financial Free Zones for headquarters business carried out therein
6.    Shipping Business
  1. TheMinistry of Economy for shipping business regulated by the Ministry
  2. TheCompetent authority in Free Zones for shipping businesscarried out therein
  3. The Competent authority in Financial Free Zones for shipping business carried out therein
7.    Holding Company Business
  1. TheMinistry of Economy for holding company business regulated by the Ministry
  2. TheCompetent authority in Free Zones for holding company business carried out therein
  3. The Competent authority  Financial Free Zones for shipping business carried out therein
8.    Intellectual Property Business
  1. TheMinistry of Economy for intellectual property business regulated by the Ministry
  2. TheCompetent authority in Free Zones for intellectual property business carried out therein
  3. The Competent authority in Financial Free Zones for intellectual property business carried out therein
9.    Distribution and Services Centres Business
  1. TheMinistry of Economy for distribution and services centres business regulated by the Ministry
  2. TheCompetent authority in Free Zones for distribution and services centres business exercised in the latter
  3. The Competent authority in Financial Free Zones for distribution and services centres business exercised in the latter

 

In brief

If you conduct a 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 structureto upgrade it by reaching the 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 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)- 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 authorised 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 Groupcan assist you in this regulatory self-assessment to fulfil your compliance legal responsibilities by:

  • to get a clear view of the new regulations and your entity’s categorisation
  • reviewinginternal corporate governance, Management information system and ESR criteria fulfilment
  • 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 servicesand fulfilling your needs at the light of the new regulations

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

 

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MOHAMMED RAHALI

Wincore Advisory Group
Managing Partner
M: +971 (0) 55 138 9591
Email

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