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The new Economic Substance Rules in the UAE – Does it impact you?

The United Arab Emirates released rules concerning the Regulations for Economic Substance (ES) in the UAE. The introduction of the Economic Substance rules is a milestone for the UAE’s tax policy towards its alignment with the global Organization for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) directives.

The Economic Substance rules and regulations are applicable to any entity which undertakes ‘Relevant Activity’ include the following sectors banking, insurance, fund management, lease, finance, headquarters service, shipping, holding company, intellectual property and distribution and service centres.

Entities based in the UAE which carry out these ‘Relevant Activities’ will need to report compliance with the Economic Substance Regulations. The entities will be required to demonstrate on an annual basis that it conducts its core income generating activity in the UAE; is directed and managed in the UAE and holds board meetings (if required) in the UAE; employs adequate qualified full-time employees in the UAE; and incurs adequate operating expenditure and maintains adequate physical assets.

In case an entity fails to meet the Economic Substance Regulations requirements, they would be subject to penalties and potentially, their license could be revoked if non-compliance is repeated.

For the purpose of reporting the effective date is (for a period effective from 30 April 2019) to be twelve (12) months from the end of the financial year commencing on or after 01 January 2019; notification requirement to be effective from 01 January 2020. Entities with at least 51% direct or indirect ownership by the UAE government are exempted from the regulation.

To understand more about the Economic Substance Regulations and determine if your entity falls within the scope of the regulations depending on your business model and activities undertaken by the business CZ tax & accounting professionals can also help you also meet the reporting requirements and implement internal reporting procedures if required.


Contact CZ Tax & Accounting [email protected] or call +971 4 407 0570

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