4.Who is subject to the Regulations?
The Regulations apply to UAE onshore and free zone companies, branches, partnerships, and other UAE business forms (referred to as Licensees) that carry out any of the following Relevant Activities.
● Banking Businesses
● Insurance Businesses
● Investment Fund Management Businesses
● Lease-Finance Businesses
● Headquarter Businesses
● Shipping Businesses
● Holding Company Businesses
● Intellectual Property Businesses
● Distribution and Service Centre Businesses
5.What does it mean to be subject to the Regulations?
For each financial period in which a Licensee earns income from a Relevant Activity, it will need to meet an Economic Substance Test in relation to that activity. The Economic Substance Test requires a Licensee to demonstrate that:
● the Licensee and Relevant Activity are being directed and managed in the UAE;
● the relevant Core Income Generating Activities (CIGAs) are being conducted in the UAE; and
● the Licensee has adequate employees, premises and expenditure in the UAE. In addition to an annual notification requirement, Licensees that undertake and earn income from a Relevant Activity are also required to file an Economic Substance Return within 12 months from the end of the relevant financial period (see Administration).
6.Do the Regulations only apply to UAE entities that are part of a foreign multinational group, or that are owned by a foreign shareholder?
No. The Regulations impose economic substance requirements on any UAE entity which carries on a Relevant Activity, regardless of whether the UAE entity belongs to a foreign multinational group. However, a UAE based Distribution Business, Service Centre Business, Headquarter Business or High-Risk IP Business would only be within the scope of the Regulations if the UAE entity transacts with foreign group companies. Distribution, Service Centre, Headquarter and High-Risk IP activities where transactions between UAE entities are not subject to economic substance requirements.
7.Is a company registered under an ‘offshore’ free zone company regime subject to the Regulations?
Yes, if the ‘offshore’ company undertakes a Relevant Activity.
8.Do the activities listed on the commercial license determine whether a Licensee undertakes a Relevant Activity?
No. Whilst the commercial license may indeed state the Relevant Activity, a ‘substance over form’ approach must be used to determine whether a Licensee undertakes a Relevant Activity and is within the scope of the Regulations. This means looking beyond what is stated on the commercial licence to the activities actually undertaken by the Licensee during a financial period.
9.Who is exempt from the Regulations?
Licensees that are directly or indirectly at least 51% owned by the Federal or an Emirate Government, or a UAE Government body or authority, are exempt from the Regulations.
10.What if a Licensee does not undertake a Relevant Activity during a financial period?
If a Licensee does not undertake a Relevant Activity during a financial period, it does not need to meet the Economic Substance Test. The Licensee would not be required to notify (see question 38) its Regulatory Authority or submit an Economic Substance Return (see question 39) for the relevant financial period.
11.What if a Licensee undertakes a Relevant Activity, but does not earn any income from that activity during a financial period?
A Licensee that undertakes a Relevant Activity but that does not earn income from this activity in a financial period is not required to meet the Economic Substance Test for that period. Whilst the Licensee would still need to submit a notification with its Regulatory Authority, it is not required to file an Economic Substance Return for the relevant financial period.
12.If all income from the Relevant Activity is earned from outside the UAE, is the Licensee exempt from the Regulations?
No, this Licensee is not exempt from the Regulations. Income from a Relevant Activity for which the Licensee needs to demonstrate economic substance in the UAE includes all income, including income that is generated by the Licensee outside of the UAE.