Article

UNITED ARAB EMIRATES: UAE introduces economic substance rules after being blacklisted.


Added on 01/09/2019

 

As published on internationalinvestment.net, Thursday 4th July, 2019.

 

The UAE has implemented economic substance rules as it seeks to be removed from the EU's blacklist of uncooperative jurisdictions.

The legislation requires directors, management and an appropriate number of qualified staff will have to be physically present in the UAE. The company will have to incur sufficient expenses and have sufficient physical assets in the UAE, and will have to control the execution of activities outsourced to third parties.

Non-compliant companies could risk fines and penalties, suspension, withdrawal or non-renewal of licenses, and the disclosure of their position to other foreign authorities. Companies in the UAE carrying out the relevant activities must file their first report within 12 months from the end of their fiscal year.

Last March the EU added the UAE and 9 other jurisdictions to its blacklist. It came just over a year after the EU agreed to "name and shame" a small number of nations as part of its efforts to fight opaque practices that facilitate tax avoidance by multinationals and individuals.

The blacklist "has had a resounding effect on tax transparency and fairness worldwide," EU Economic and Monetary Affairs Commissioner Pierre Moscovici said in a statement. "We are raising the bar of tax good governance globally and cutting out the opportunities for tax abuse."

The EU list is composed of countries that "either failed to deliver on their commitments to comply with required good-governance criteria, or did not commit to do so at all," according to the European Commission.

At the time, the United Arab Emirates (UAE) condemned its inclusion in the European Union's tax haven blacklist.

"This inclusion was made despite the UAE's close cooperation with the EU on this issue and ongoing efforts to fulfill all the EU's requirements," an Emirati official told WAM, adding that the Emirates had provided the EU with "a detailed timetable, including a series of actions that are being carried out, in line with sovereign legal procedures and constitutional requirements."

"The UAE will continue to update its domestic legislative framework in this regard," the official added.

The economic substance legislation that has now been introduced by the UAE, as Cabinet Resolution No. 31 of 2019, aims to address this.

Affected companies must ensure that their boards have frequent quorate meetings in the UAE, minuted and signed by all attendees, and all the records must be kept within the UAE.

For legal entities such as branches, representative offices and other companies who are managed by a single director, that manager must be physically present in the UAE when making the main decisions. Holding companies are subject to less extensive requirements.