The background for the removal of UAE from the EU blacklist on 10 October 2019, goes back to the first half of 2019 when in April, the UAE Government issued a cabinet resolution. The exact resolution, issued on April 30 2019, was the UAE Cabinet of Ministers Resolution No. 31 that specifically addressed Economic Substance Regulations in the UAE (the Regulations).
By 11 September 2019, a set of guidelines was issued regarding how these economic substance regulations would apply, and how it must be adhered to. It was in fact this resolution and the application guidelines that served as a strong basis for the removal of UAE from the EU blacklist.
What are the economic substance regulations?
The economic substance regulations concern all entities that engage in activities within the UAE as per their regular business, and commensurately make revenues and profits within the UAE.
Why are economic substance regulations important?
These economic substance regulations lay emphasis on whether the profits made by such entities are proportionate to the scope of activities conducted within the UAE. Any disproportionate or artificial profits that so arise due to activities within the UAE would be specifically dealt with penalties under the economic substance regulations.
Put simply, the economic substance regulations determine the reason for the establishment/existence of each business entity in the UAE. This establishment comes from the activities they do, the revenues they make and the profits so generated.
When is the first reporting year for economic substance regulations?
Also, as the economic substance regulations came into effect in 2019, the year 2019 becomes the first year to report compliance by all business entities. Therefore, all business establishments are required to comply by presenting their activities, the scope of each activity within UAE, the revenues generated and the commensurate profits made under these economic substance regulations.
How do the economic substance regulations benefit businesses?
Rather than viewing the economic substance regulations as a compliance challenge, it becomes very important to view the economic substance regulations more as a benefit. For any legitimate business enterprise already compliant with the economic substance regulations, the reporting becomes a mere formality, while the larger benefit for the business is its ethics and strong foothold. The fact that a business is already conducting its activities, earning revenues and making profits proportionately in the UAE lends strong credibility to an organization’s image and the reporting under economic substance regulations add strong testimony.
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What are company secretarial services?
The services that we provide for aiding businesses to report their compliance under economic substance regulations, is referred to as company secretarial services. We would be responsible as the competent advisors to report your business information to the Government on your behalf, and as per the guidelines laid down by the economic substance regulations.
What is the first step?
Our internal experts have carefully and judiciously studied the detailed economic substance regulations issued under the resolution by the UAE Government. It is our initial assessment that the first step to reporting compliance is to gauge whether businesses even come under the scope of the economic substance regulations.
This gauging of relevance is done by an initial economic substance regulations test. Through our company secretarial services, we help you confirm whether your trade license activities are all under the scope/jurisdiction of UAE. The next step under the economic substance regulations test is to assess whether you have adequate employees performing such activities.
What are the next steps in the economic substance regulations test?
Following the initial assessment, the detailed steps to reporting compliance cover the following steps:
– Assessing all your business activities through company secretarial services;
– Providing detailed segregation of business activities under the “relevant” category;
– Ensuring that all necessary documents are properly screened to prove the board meetings and quorum;
– Income identification, income assessment and income reporting for only relevant activities;
– Proper segregation of all relevant information into reporting time periods as per Government requirements;
– Providing a comprehensive list and report for all full-time employees who enable the business to proceed with its relevant business activities; and
– Delivering detailed guidance and advice regarding the economic substance
What happens if we do not comply with economic substance regulations?
The resolution regarding economic substance regulations is highly critical and all businesses are expected to provide their reporting of compliance, irrespective of the magnitude. Whether companies have all their activities and income duly covered within UAE and backed by documentary evidence, they are still expected to provide such compliance as part of the economic substance regulations. Depending on the nature of the non-compliance, the penalties have been enumerated by the Government. Penalties start from AED 10,000 and go up to AED 300,000 or even suspension of trade license.
In short, it becomes essential to abide by the reporting guidelines as per the economic substance regulations resolution of the Government. Do get in touch with us to know more about how to report your business information under the economic substance regulations.
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