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The UAE may be famed for its low barriers to entry and minimal bureaucracy, but that’s not to say it is entirely free from regulation.
Businesses in the UAE must remain compliant with a range of regulation governing everything from VAT collection and payment to anti-money laundering and economic substance conditions.
In this article, we’ll explore several key pieces of UAE compliance regulation: AML, ESR, UBO, and VAT.
What is AML in Dubai, UAE?
In an effort to increase transparency and comply with regulations in other international jurisdictions, the UAE maintains a robust anti-money laundering system.
Underpinning this system are two laws: No. 2/2002 Anti-Money Laundering (AML) and No. 1/2004 Counterterrorist financing (CTF).
Who needs to register for AML?
Businesses in financial services and related industries must adhere to AML regulation. This includes banks, insurers, real estate agents, accountants and more.
AML penalties in the UAE
Offences under the AML law include opening or maintaining accounts with fake names, failure to carry out due diligence, and failure to take necessary measures to determine risk of crime.
Fines for such offences range from AED 50,000 to AED 1m. Offenders may also face imprisonment.
What is ESR in the UAE?
Introduced in August 2020, Economic Substance Regulation (ESR) requires onshore companies to “maintain and demonstrate an adequate economic presence” in the UAE.
To ensure this is the case, UAE onshore companies carrying out relevant activities must meet the requirements of an Economic Substance Test. This can be achieved in a number of ways:
The following activities are considered relevant under ESR:
Why was ESR implemented in the UAE?
The UAE introduced ESR to dissuade investors from using the country as a tax haven. The move brings the country in line with the transparent and robust legal and commercial standards of the Organisation for Economic Development and Cooperation (OECD) and the EU.
Ultimate Beneficial Ownership (UBO)
Aimed at further increasing financial transparency in the UAE, Ultimate Beneficial Ownership (UBO) is a Cabinet Resolution outlining the requirement for UAE businesses to disclose details of their beneficial owners. Beneficial owners include all significant shareholders and nominee directors.
Unless exempt, UAE businesses must prepare a register of beneficial owners and file it with the relevant authority.
What is UBO declaration in the UAE
Companies registered with the Department of Economic Development (DED) must submit beneficiary statements and shareholder registrations – known as a mandatory submission or declaration – to the DED at the earliest opportunity.
These submissions must be accompanied by supporting documents that prove the accuracy of beneficiary and shareholder details.
What constitutes a UBO?
UBOs are individuals who own, have control, or have voting rights with at least a 25% shareholding in the company. It also includes anyone with the right to dismiss the majority of directors and managers. If such a person does not exist, the UBO is any person who exercises significant control over the company.
Is UBO mandatory in the UAE?
Essentially, yes. All companies that are licensed in the UAE, except those owned by local or federal government, must make UBO declarations.
Failure to make submissions to the DED could lead to issues with licensing and service interruption.
DED-registered companies cannot register trade names, make changes to capital or shareholding, or carry out any other corporate action unless they have completed their mandatory submissions.
What is VAT in the UAE?
Value Added Tax (VAT) was rolled out in the UAE on 1 January 2018 at a flat rate of 5%. The new tax was introduced to provide the government with an additional source of income, outside of oil revenues, with which to provide a range of high-quality public services.
How is VAT calculated in the UAE?
You must register for VAT in the UAE if your taxable supplies and imports exceed AED 375,000.
You can also register to pay VAT voluntarily if your taxable supplies and imports exceed AED 187,500.
VAT is collected by a business from its customers and paid to the government. Any VAT paid by a VAT-registered business to its suppliers can be reclaimed from the government.
For the purposes of VAT, the UAE Federal Tax Authority (FTA) defines taxable supplies as supply of goods or services made by a business in the UAE that may be taxed at a rate of either 5% or 0%.
Imports are also taken into consideration for this purpose, if a supply of such goods or services would be taxable if made within the UAE.
What companies are exempt from VAT in the UAE?
VAT is applicable to businesses both on the UAE mainland and within free zones outside of defined ‘designated zones’.
VAT registration is mandatory if your business meets either of the following criteria:
The total value of your taxable supplies made within the UAE exceeds AED 375,000 over the previous 12-month period.
You anticipate making taxable supplies with a value exceeding AED 375,000 within the next 30 days.
How to pay VAT in the UAE
To pay VAT in the UAE, you’ll first need to register. You can do this on the Federal Trade Authority website.
You will be asked to complete an application form and submit the following:
Business information – including those you have business relationships with
VAT returns can then be submitted via the FTA eServices portal. To submit a return:
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