UAE Economic Substance, 2019
The UAE Cabinet of Ministers adopted an economic presence (substance) resolution, according to which, all companies, regardless of whether they are residents of free economic zones or not, which carry out the following activities, must comply with the new requirements for economic presence in the UAE:
• Distribution centres
• Fund administration
• Finance and leasing
• Intellectual property
The legislation's substance requirements prescribe for corporates in the UAE performing the above mentioned activities to:
- conduct certain core business activities within the UAE (e.g. incurring operating expenses and taking relevant management decisions),
- have its director(s) and management in the UAE,
- have an appropriate number of qualified staff to perform its activities physically present in the UAE,
- incur sufficient expenses in relation to outsourcing activities to third parties in the UAE,
- have sufficient physical assets or an adequate expense level in the UAE, and
- control the execution of activities which have been outsourced to third parties.
In order to satisfy the requirement that direction and management of the corporate takes place in the UAE, corporates must ensure that:
- the board of directors have quorate meetings in the UAE on frequent occasions;
- the meetings are minuted and signed by all attendees;
- the directors have the necessary knowledge and experience to carry out the functions of the board; and
- the records of all meetings of the board and records of the company are kept within the UAE.
For legal entities such as branches, representative offices and other companies which do not have a board and whose management is carried out by a single manager/director, that manager/director must be physically present in the UAE when making the main decisions concerning administration and operation of that entity.
Holding companies are subject to less extensive requirements and will satisfy the economic substance requirements if they fulfil the requirements for the submission of data and information to the competent authority, and if they have sufficient staff and premises to carry out the work of a holding company.
Companies which carry out intellectual property activities are subject to additional obligations.
A company carrying out one or more the above mentioned activities must (within 12 months from the end of the fiscal year), submit a report to the authorities evidencing that the company satisfies its substance requirements.
Non-compliance with these rules is the administrative responsibility (fines and potential deregistration), and in case the report indicates non-compliance, the UAE Authorities shall disclose information of the company to the foreign authorities in which the ultimate Beneficial Owners of the non-compliant company reside.
If the economic substance requirements failed to be met, a penalty of between AED 10,000 and AED 50,000 shall be imposed by the Authority. A maximum penalty of AED 300,000 can be imposed in case of a repeated failure to meet the requirements. The UAE companies may be subject to a maximum of AED 50,000 penalty if they provide inaccurate information pertaining to their economic substance.
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