The Ministry of Finance of the UAE published the brand new UAE Economic Substance Requirements Law (herein «the new law») which applies retrospectively.
What are the changes?
Repealed Laws (herein «the old legislation»):
- Cabinet Resolution No. 31 of 2019
- Cabinet Resolution No. 7 of 2020
- Cabinet Resolution No. 58 of 2019
- Ministerial Decision No. 215 of 2019
The new law has the same scope of application as the old one and applicable to:
- A «Licensee»
- Carrying out «Relevant Activity»
- Deriving income
At the same time the new law provides with the updated definitions.
According to the new law «Licensee» is a legal or unincorporated partnership registered in the UAE (including a free zone and financial free zone).
The old legislation defined «licensee» as any licensed person (e.g. natural person, sole proprietorship, trust, foundation).
The definition of «Distribution and Service Centre Business» has been expanded in comparison to the old legislation.
According to the Article 1 of the new law, Distribution and Service Centre Business means a centre that carries out any of the following businesses:
- purchasing from a Foreign Connected Person component parts or materials for goods; or goods ready for sale, and selling component parts, materials or goods; or
- providing services to Foreign Connected Persons.
Connected Person defined in the new law as an entity forming part of the same Group to which the licensee or the exempted licensee belongs. At the same time, Group is two or more entities related through ownership or control such that they are required to prepare Consolidated Financial Statements for financial reporting purposes under the accounting standards applicable thereto.
Economic Substance Requirements:
Licensees and Exempt Licensees submit Economic Substance Notification to Regulatory Authority indicating:
- Nature relevant activity
- Whether it generates relevant income
- Date end Financial year
- Any other information
Notification submitted by Exempt Licensee accompanied by sufficient evidence to substantiate status of Exempt Licensee
Notification submitted within 6 months from the end of Financial Year
Submitted electronically on Ministry of Finance portal
Licensees that already submitted notifications have to re-submit on Ministry of Finance portable once its available
Licensees carrying out Relevant Activity are required to submit Economic Substance Report ti Regulatory Authority with information regarding the Licensee. Exempt Licensees which fail to prove their exempt status are obliged to submit report as normal Licensees.
What information must be displayed in Economic Substance Report:
- Type of Relevant Activity
- Value and type of income
- Value and type of operating expenses and assets
- Location of place of business, plant, property or equipment
- Number and qualification of full time employees
- Core Income Generating Activity
- Financial statements
- Statement whether it meets Economic Substance Test
- Jurisdiction Parent Company, UPC, UBO were they claim tax residency
Follow the link for the full text of the new law https://drive.google.com/file/d/1uUQ6wqRrJgcxoVXCTS83GNBbwpylURtr/view?usp=drivesdk
Contact us for more details and clarifications