As part of the UAE’s commitment being a member of the OECD Inclusive Framework, in response to an assessment of the UAE’s tax framework by the European Union (“EU”) Code of Conduct Group on Business Taxation, the UAE introduced a Regulation on the Economic Substance (Cabinet of Ministers Resolution No.31 of 2019, the “Regulations”) on 30 April 2019.
All UAE onshore, offshore and free zone companies that carry on and generate income from one of these activities:
* Banking
* Insurance
* Investment fund management
* Lease-finance
* Headquarters
* Shipping
• Holding company
* Intellectual property
* Distribution and service centres
As per UAE authorities, all constituent entities (licensees) must submit a notification by 30 June 2020, declaring whether such licensee is carrying on a relevant activity as defined under ES Law. This is an annual requirement.
It applies to all companies established in the UAE (except those entities in which a minimum 51 per cent direct or indirect investment is from government authorities) and which have an income from a relevant sector in any accounting period commencing on or after January 1, 2019.
UAE companies - offshore, onshore or mainland - should notify the concerned regulator on or before the due date issued by their applicable regulator. All mainland companies have to notify the Ministry of Economy before June 30, 2020.
Penalties for failing to notify the Regulatory Authority within the given deadline is between AED10,000 and AED50,000. Other penalties shall apply in case Licensees fail to provide accurate or complete information and demonstrate sufficient economic substance in the UAE.
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