FAQs on Economic Substance Regulations in UAE

KGRN AuditKGRN Audit    29 November 2020
FAQs on Economic Substance Regulations in UAE

Do the Economic Substance Regulations UAE only apply to UAE entities that are part of a foreign multinational group or foreign shareholder?

Nope. The rules establish the requirements for economic substance regulations UAE for any UAE entity that carries out relevant activities, needless of whether the UAE entity is held by the foreign multinational group. However, a distribution business in the UAE, a service business centre, head office or a high-risk intellectual property business is subject to the Rules only if the company from the UAE makes transactions with foreign companies of the group. Distribution activities, service centre, head office and high-risk intellectual property, where transactions between entities of the UAE do not fall under the requirements of an economic entity.

Is a company under a free zone (offshore) regime subject to the same Economic Substance Dubai rules?

Yes, if the “offshore” company carries out the relevant activities.

Based on the listed activities on the commercial license, should a Licensee undertake a Relevant Activity?

The commercial license states it is a relevant activity under the hood of its scope, the licensee can undertake activities under specified rules and regulations. Thus, the licensee undertakes activities as mentioned in the commercial license during the financial period.

Who is exempt from the Regulations?

Licensees who are directly or indirectly at least 51% owned by the federal government or the government of the emirate, government body or body of the UAE.

When a licensee does not undertake relevant activities during the financial period, what happens?

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, therefore, does not have to notify (see question 38) its Regulatory Authority or submit an Economic Substance Return (see question 39) for the relevant financial period.

What happens if there is no income on taking up relevant activities during a financial period by obtaining the license?

A licensee should notify its Regulatory Authority when the licensee does not earn any income from relevant activities done during the financial period while they are not required to meet the Economic Substance Test.

If a licensee obtains income only from the Relevant Activity is earned from outside the UAE, then is the licensee an exempt from regulations?

The licensee must produce the economic essence in the UAE that comprises all income from the UAE along with the income received outside the UAE and on producing the licensee is not exempt from the rules.


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You can access Law including Guidelines, Cabinet & FTA Decisions, Public Clarifications, Forms, Business Bulletins for all taxes (Vat, Excise, Customs, Corporate Tax, Transfer Pricing) for all GCC Countries in the Law Section of GCC FinTax

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