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Guidelines for Filing Economic Substance Regulations
According to cabinet decision 57 of 2020, all companies currently operating in the UAE must file a notification with the Ministry of Finance. The new regulation states that company managers must file the notification on the Ministry of Finance website within 12 months from the end of their financial year. Notably, non-filing the notification within the given deadline will be subject to fines. The relevant business activities under the new regulation are:
- Investment fund management
- Lease and finance
- Holding company
- Intellectual property
- Distribution and service center
Any business activity relevant to the above list should be determined and reported via the substance over form approach, even if they are not mentioned on the company’s trade license.
All entities registered in the UAE and engaged under the definition of a Licensee must file the notification. These include registered onshores, free zones, offshore free zones, financial free zones, and more.
- limited liability companies (LLCs)
- private shareholding companies
- public shareholding companies
- joint venture companies
- business partnerships (limited liability partnership, limited partnership, general partnership, etc.)
Who is exempted from filing the notification?
The following list summarizes the persons who are expected to file a notification to the Ministry of Finance:
- sole proprietorships
- Any entity that has not earned income from any relevant business activities listed above during a financial year.
How should the branches of companies and businesses file the notification?
Branches registered in the UAE do not have to file a notification separately. The head office registered in the UAE must file a combined notification that includes the collective relevant activities of the head office and all its branches. However, the branch of a foreign entity established outside of the UAE and engaged in the relevant business activities must file the notification with the Ministry of Finance. It is essential to consider that the branch of a foreign company if its income from the relevant activities is taxable outside the UAE, is exempted from filing the notification. Also, following the previous exemption regulation, a UAE entity conducting a relevant activity through a branch office but registered outside the UAE does not have to file the notification with the details of the branch office. This is valid only if the income earned by the branch office from the relevant activity is taxable outside the UAE.
What information should be reported in the notification?
The following information is the basic information that should be reported to the Ministry of Finance:
- Details of the nature of the relevant activity,
- Details of the income generated from the relevant activity,
- End date of the financial year.
Deadlines for filing the notification
The notification should be filed within six months from the end of an entity’s financial year. The clarification on the official website of the Ministry of Finance states that the notifications that are due, even in the case of entities that previously submitted a notification, must refill the new notification according to the new regulations and deadlines.
How Choose UAE Can Help
Get in touch with our Government relations officers to guide you in filing your Economic Substance Regulations. Our efficient and seamless processes paired with our partnership with UAE Government authorities will give you an optimal customer service experience.
We also provide a wide range of business support services that will aid you in running your business smoothly and efficiently. Contact us today for a free consultation.