UAE introduced a Resolution on the Economic Substance (Cabinet of Ministers Resolution No.31 of 2019, the “Regulations”) on 30 April 2019.
The Regulations require UAE onshore and free zone companies and other UAE business forms that carry out any of the “Relevant Activities” listed below to maintain an adequate “economic presence” in the UAE relative to the activities they undertake.
Relevant Activities:
- Banking Business
- Insurance Business
- Investment Fund management Business
- Lease – Finance Business
- Headquarters Business
- Shipping Business
- Holding Company Business
- Intellectual property Business (“IP”)
- Distribution and Service Centre Business
If the business meets the following conditions in the UAE (Economic Substance Test), then the Economic Substance Regulations applies to a business:
- The UAE licensee conducts a Core Income/Profit Generating Activity (CIGA) in UAE.
- The business is managed and directed in the country.
- There is a sufficient number of the full time employees.
- There’s sufficient operating expenditure that is incurred by the business or adequate expenditure on the outsourcing of a CIGA to a third party service provider in UAE.
- There’s sufficient physical assets or sufficient level of expenses for the outsourcing to a third party service provider in UAE.
Failure to comply with Economic Substance Rules will incur penalties of up to AED 50,000.
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