On April 2019, the UAE introduced Economic Substance Regulations.
The Regulations apply to companies and other business forms registered in the UAE, including in a Free Zone or in a Financial Free Zone, that carry out any of the following Relevant Activities:
- Banking Businesses
- Insurance Businesses
- Investment Fund Management Businesses
- Lease-Finance Businesses
- Headquarters Businesses
- Shipping Businesses
- Holding Company Businesses
- Intellectual Property Businesses
- Distribution and Service Centre Businesses
If carrying on one or more of said Relevant Activities, a company needs to demonstrate economic substance and file an economic substance return in respect of those financial periods in which any gross income was earned.
The notifications to the competent authority are to be done yearly or bi-early, starting with the financial year 2019. As such, the first notifications – no matter if a Relevant Activity has been carried on or not – are due in 2020 (June 2020 announced as first interim deadline) and heavy penalties for non-compliance shall be applied.
Also, if the competent tax authority determines that the economic substance tests have not been met for a financial period, financial penalties could be arising and non-compliant companies should be struck-off the companies register.
Partner of Horizon Consulting in United Arab Emirates – prudenter.ae