Cabinet of Ministers Resolution Concerning Economic Substance Requirements (no. 57 of 2020)
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Repealed Laws (herein «the old legislation»):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.
Thus, there is no requirement to the goods to be imported and stored in the UAE and no requirement for services to be provided «in connection with a business outside the State».
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
NB! 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