economic substance regulations uae notification
© 2021 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The businesses in the UAE will now have to prove their Economic and Substantial existence in the UAE and have to apply the substance over form approach to such a review. There are also various regulatory filing requirements that need to be met in order to comply with the regulations. The report also seeks to identify differences in information provided in the notification, which is also required to be provided in the report, and reasons for the same. Other penalties apply where Licensees fail to provide accurate or complete information and demonstrate sufficient economic substance in the UAE. The economic substance report requires specific declarations for meeting adequacy (qualified employees, expenditure and physical assets), directed and managed test, and reduced substance tests for holding companies. Find out how KPMG's expertise can help you and your company. The Regulations require ALL UAE licensed entities to comply with notification and return filing obligations and those that carry out any of the ‘Relevant Activities’ to maintain an adequate ‘economic presence’ in the UAE. On this basis, UAE sovereign investment funds and other UAE government controlled and/or related entities would not be required to meet the UAE economic substance requirements. The UAE Economic Substance Regulations (Cabinet of Ministers Resolution 31 of 2019) came into force on 30 April 2019, and subsequent guidance (Ministerial decision No. The UAE economic substance regulations apply to entities with a financial year commencing on or after 1 January 2019. January 2019. It is an essential aspect in filing the annual Economic Substance Return for the reported period. Below, we have summarised the most up to date filing requirements as released by some of the Regulatory Authorities. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006. Below, we have summarised the most up to date filing requirements as released by some of the Regulatory Authorities. In addition, the UAE Economic Substance Regulations (ESR) Report is due for submission as soon as possible.. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. The Regulations require companies and other business forms registered in the UAE that carry on one or more “Relevant Activities” (together, “Relevant Activities”), to have economic substance in the UAE in relation to these activities, and to comply with notification and return filing obligations. Licensees would be required to determine their primary/main regulatory authority. What compliance obligation does it have in respect to the 2019 financial year? , including those who do not undertake relevant. You will not receive KPMG subscription messages until you agree to the new policy. The UAE Economic Substance Regulations (Cabinet of Ministers Resolution 31 of 2019) came into force on 30 April 2019, and subsequent guidance (Ministerial decision No. Annual notification filing – developments. In this video, we will be discussing the new Economic Substance Regulations that have been implemented in the UAE. Economic Substance Regulations & Beneficial Owner (UBO) Procedures & Deadline – FAQs November 15,2020 / Haroon Juma / Economic Substance Regulation Under the enactment of two pieces of legislation affecting Mainland and Free Zone entities registered in the UAE: UAE based entities which are covered by the Economic Substance Regulations (ESR) should take note of these changes ahead of the first ESR Report filing deadline, the 31st of December 2020. Economic Substance Regulations (ESR) were introduced in the UAE with effect from 30 April 2019 1. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. Companies need to define a reporting period when submitting a notification of the UAE’s Economic substance regulations. The United Arab Emirates (UAE) Cabinet of Ministers has recently issued updated Economic Substance Regulations which repeal and replace those previously announced. 31/2019 with effect from 30th April 2019 on Economic Substance Regulations in the UAE. All UAE entities which fall within the scope of the Updated ESR will be required to submit (or re-submit) an economic substance notification to the UAE Ministry of … IN A NUTSHELL Economic Substance Regulations (“ESR”) were introduced by the UAE Government in 2019. This applies to those entities whose financial year ended on 31 December 2019. For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance. Such services are provided solely by member firms in their respective geographic areas. Given that the Ministry of Finance portal is expected to be launched shortly and that the due date for filing the first economic substance report is fast approaching, these templates will help businesses to start collating the information and documents required for submission along with the economic substance notification and report in advance. 27 June, 2020 Tax professionals expect a user guide to be released shortly on the procedures and clarification on filling the forms. UAE entities that are directly or indirectly owned by the UAE government (both federal and local) are specifically excluded from the Regulations. As per the Economic Substance Regulations (ESR), all Licensees are required to notify the Regulatory Authority (typically the license issuing authority) annually on the following aspects: Whether or not the Licensee is carrying on a Relevant Activity On 30 April 2019 UAE introduced a Resolution on the Economic Substance and these regulations are applicable for all private sector companies. Click anywhere on the bar, to resend verification email. UAE Economic Substance Regulations & ESR Filing in UAE . Economic Substance Regulations in the UAE is another compliance requirement for entities registered in the UAE. The KPMG logo and name are trademarks of KPMG International. Start adding content to your list by clicking on the star icon included in each card. 57 of 2020 that includes a set of amended regulations and all licensees in the UAE are required to re-assess their current ESR classifications and align them according to the latest regulations. On 5 November 2020, the UAE Ministry of Finance (“MoF”) published two new documents containing further guidance in relation to the Notification and Substance Report templates released for UAE Economic Substance Regulations (“ESR”) purposes. The study considers various payment,... Information on corporate and individual tax rates and rules in over 150 countries worldwide. Responding to the potential business impacts of COVID-19, PwC's Watani Graduate Programme for UAE Nationals, All entities/ licensees, including those who do not undertake relevant activity, By 30 June 2020 (extended from 12 June 2020), By 15 June 2020 (extended from 31 May 2020), Securities and Commodities Authority (SCA), SCA have contacted via email all Investment Management Firms, Management Company Firms regulated by SCA requesting submission of the notification form, By 30 June 2020 (extended from 31 March 2020), Having sufficient substance in the UAE and how to demonstrate this. We expect the authorities to clarify this and other points as and when they release notification forms. The UAE introduced Economic Substance Regulations (“the Regulations”) that became effective as of 1 January 2019. All UAE entities should re-assess whether their previous economic substance analysis is still accurate under the Updated ESR. Jay Krishan, Partner. ESR impacts all entities licensed in the UAE whether on the mainland or in the free zones. 31/2019. What is the purpose of the Notification? The updated information regarding the ESR has been published by the Ministry of Finance (MoF) on their web portal (link here ). This regulation lists out the minimum financial criteria’s and tax framework that the licensed entities operating in UAE shall follow. Economic Substance Regulations (ESR) Notification in the UAE. The Regulations require ALL UAE licensed entities to comply with notification and return filing obligations and those that carry out any of the ‘Relevant Activities’ to maintain an adequate ‘economic presence’ in the UAE. On 30 April 2019, the UAE introduced Economic Substance Regulations (ESR) under the Cabinet of Ministers Resolution No.31 of 2019. COVID-19 impact on Economic Substance There are two reporting requirements under ESR – (1) filing of … Continue reading Economic Substance Regulations in the UAE The economic substance notification and report is required to be filed within 12 months following the end of the financial year (with the first report due by 31 December 2020 for the financial year ended 31 December 2019). According to the regulations, the companies that have been dissolved, struck-off, or liquidated before the deadline for submission of the Economic Substance Notification, are not required to file the Economic Substance Regulations Notification in the UAE. Please note that your account has not been verified - unverified account will be deleted 48 hours after initial registration. On this basis, UAE sovereign investment funds and other UAE government controlled and/or related entities would not be required to meet the UAE economic substance requirements. The economic substance report requires licensees to provide the accounting profit/(loss), in addition to the ârelevant incomeâ earned from each of the relevant activities. Since the last time you logged in our privacy statement has been updated. There are potentially two broad filing requirements under the Regulations: (i) Notification form and (ii) Annual substance return. This is only a guide and should be read together with the relevant legislation, in particular, the UAE Economic Substance Regulations as set out in the Cabinet of Ministers Resolution No. Also read: ESR Compliance: 5 Requirements for the UAE Economic Substance Test. © 2017 - 2021 PwC. These are: the Ministry of Finance Resolution No. Our privacy policy has been updated since the last time you logged in. Assessment on whether you fall within the rules, Assessment on whether you can satisfy the Economic Substance test. The information provided as part of the Notification is a prerequisite to filing an Economic Substance Report for the same period (if required). While attaching the financial statements is mandatory along with report, it remains unclear whether these need to be audited. UAE based entities which are covered by the Economic Substance Regulations (ESR) should take note of these changes ahead of the first ESR Report filing deadline, the 31 st of December 2020. Annual Notification to the ADGM Registration Authority, as required under Article 8(1) of the UAE Economic Substance Regulations. Annual notification filing – developments. The UAE Cabinet of Ministers issued Cabinet Resolution No. The Economic Substance Regulations are applicable to all the Licensees within the UAE’s jurisdiction and include all Licensees operating within free-zones in UAE. What companies and governments can do to make less taxing in the Middle East? Dear Respective Client, Hope this email finds you well. (31) of 2019. Deadline for notification under the Economic Substance Regulations (ESR) The ESR was introduced in April 2019 in order prevent companies from establishing themselves in the UAE for the purposes of channelling payments which would otherwise be taxable abroad. Please take a moment to review these changes. The Issuance of Directives For The Implementation of The Provisions of The Cabinet Resolution No. As such, all UAE entities must self-assess whether they perform relevant activities or not, and declare their position in the notification … All rights reserved. Economic Substance Regulations (ESR) Notification Requirement for Companies Under Liquidation. UAE: Notifications, economic substance regulations, All branches of a licensee carrying out relevant activities, Confirmation if the licensee meets the definition of an âexempted licenseeâ, Parent company, ultimate parent company, and ultimate beneficial owners of the licensee. There are potentially two broad filing requirements under the Regulations: (i) Notification form and (ii) Annual substance return. As per the Economic Substance Regulations (ESR), all Licensees are required to notify the Regulatory Authority (typically the license issuing authority) annually on the following aspects: Whether or not the Licensee is carrying on a Relevant Activity To avoid non-compliance with these rules and potential penalties, as a first and immediate step all UAE entities (both companies and branches) should assess whether they fall under the UAE Economic Substance rules (in 2019) and which of the below compliance obligations they may have (if any): If the entity does fall under these rules and has to demonstrate sufficient substance in the UAE, it should also make an assessment as to whether it can satisfy the economic substance tests prescribed by the regulations. Economic Substance Regulations Notification in UAE. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. Partner, International Tax and M&A Services, PwC United Arab Emirates, Manager - International Tax Services, PwC Middle East. The purpose of this Economic Substance Annual Notification (ES Notification) is to provide the Registration Authority with certain initial information on an ADGM Licensee and its activities in the United Arab Emirates (UAE), and is a prerequisite to filing an Economic Substance return for the Reportable Period (where required). Under the ESR, all filing requirements fall under the remit of the relevant Regulatory Authority, and as such it is the Regulatory Authorities that set the requirements, deadlines and format for notification filing as they believe is appropriate and which may vary. Read an October 2020 report prepared by the KPMG member firm in the UAE. The purpose of the Notification is to provide the Regulatory Authorities with certain initial information in respect of Licensees and their activities in the UAE for the relevant Reportable Period. The purpose of this Economic Substance Annual Notification (ES Notification) is to provide the Registration Authority with certain initial information on an ADGM Licensee and its activities in the United Arab Emirates (UAE), and is a prerequisite to filing an Economic Substance return for the Reportable Period (where required). Being a serious business owner, you must know that the Economic Substance Regulations UAE (ESR) requires all licensees to file the ESR notification form with the concerned regulatory authorities. The Paying Taxes study provides robust information which enables tax systems around the world to be benchmarked. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Economic Substance Regulations UAE. Can your UAE entity satisfy the economic substance test? Companies and certain other UAE business forms that undertake a Relevant Activity must comply with the Economic Substance Regulations, which includes the annual submission of a Notification and Economic Substance Report. The United Arab Emirates (UAE) Cabinet of Ministers has recently issued updated Economic Substance Regulations which repeal and replace those previously announced. Get the latest KPMG thought leadership directly to your individual personalized dashboard. The Economic Substance Notification deadline is swiftly approaching for UAE entities, with most regulatory authorities working with a June 30, 2020 due date. Please see www.pwc.com/structure for further details. There are potentially two broad filing requirements under the Regulations: (i) Notification form and (ii) Annual substance return. While the economic substance notification template is broadly similar to the form issued by many regulatory authorities, additional details are to be provided with regard to reporting in the UAE for the following: In order to substantiate meeting the core-income generating activity test for each relevant activity, the report provides flexibility to licensees to explain why core-income generating activities have not been performed in the UAE (if applicable). Economic Substance Regulations(ESR) Dubai, UAE was brought out via Resolution 31 of 2019 in April of the same year.The Economic Substance Regulation serves as a guideline for improving the nation’s tax frameworks and will make companies more accountable for maintaining an economic presence in the UAE. In addition to information required in the report, licensees can also optionally include any additional documentation and information to demonstrate substance. All UAE businesses (including those that had previously filed their economic substance notifications by 30 June 2020) are now required to file (or re-file) a notification through the Ministry of Financeâs dedicated portal. You will not continue to receive KPMG subscriptions until you accept the changes. This is only a guide and should be read together with the relevant legislation, in particular, the UAE Economic Substance Regulations as set out in the Cabinet of Ministers Resolution No. On 10th August 2020 New ESR was introduced via Cabinet Resolution 57/2020 which repealed and revoked Cabinet Decision no. Businesses in the UAE have until 30 June this year to file an economic substance regulations (ESRs) notification, the federal government has confirmed. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Offshore Companies, any person or company holding a trade license or certificate of incorporation to carry out any business activity is coming under Economic Substance Regulations. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. Offshore Companies, any person or company holding a trade license or certificate of incorporation to carry out any business activity is coming under Economic Substance Regulations. The most recent UAE Economic Substance Regulations Updates have seen substantial modifications and now require re-assessment and re-submission of notification. In line with this, the companies licensed by the Dubai International Financial Centre (DIFC) free zone are also required to ensure ESR compliance. The UAE has recently introduced economic substance regulations, and as a result, all UAE businesses that may be subject to these regulations should be … Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Economic Substance Regulations are set in place to ensure that UAE entities that undertake certain activities are not used to artificially attract profits that are not commensurate with the economic activity undertaken in the UAE. There are also various regulatory filing requirements that need to be met in order to comply with the regulations. The UAE’s Finance Ministry has announced all companies in the UAE which engage in any of the relevant activities under the Economic Substance Regulations have to submit a notification to the Regulatory Authority by 31 December 2020. The UAE Ministry of Finance on 22 October 2020 published âtemplatesâ for filing notifications and reports under the UAE economic substance regulations. The Economic Substance Regulations are applicable to all the Licensees within the UAE’s jurisdiction and include all Licensees operating within free-zones in UAE. Such provisions should be read in conjunction with the relevant tax laws and provisions prevailing in such countries on residence and taxability on foreign incomes and its highly recommended to check in those countries before the economic substance notification filing in UAE. The UAE rules are, in part, a reaction to the UAE having been once placed on the EU’s list of non-cooperative tax jurisdictions. In other words, those entities must be subjected to an economic substance test annually. We want to make sure you're kept up to date. There have been certain changes to the rules and regulations pertaining to economic substance regulations in the UAE. The guidance documents include useful clarifications on the Notification and Substance Report forms UAE: Notifications, reports under economic substance regulations UAE: Notifications, economic substance regulations The UAE Ministry of Finance on 22 October 2020 published “templates” for filing notifications and reports under the UAE economic substance regulations. All business entities in the UAE undertaking relevant activities as per law and required to submit the annual ESR Notification and Economic Substance Report must do so to the regulatory authority no later than 31st January 2021 to avoid administrative penalties. Additionally, while the same core-income generating activities are currently listed in the template for all activities, it is expected that this will be rectified in a later version of the template. The Notification is a method for Regulatory Authorities to collect certain initial information in respect of Licensees and their activities in the UAE for the relevant Reportable Period. KPMG International and its member firms are legally distinct and separate entities. How to define the reporting period in the economic substance notification? 57 of 2020, issued on 10 August 2020 (Resolution) and Ministerial Decision No. Some authorities across the emirates had imposed earlier deadlines, with an earlier deadline of 31 March 2020 set by the Dubai International Finance Centre (DIFC) , for example. branch in the UAE and require any of the below: the rules and guide you as to what actions are required to ensure full compliance. UAE: Notifications, reports under economic substance regulations UAE: Notifications, economic substance regulations The UAE Ministry of Finance on 22 October 2020 published “templates” for filing notifications and reports under the UAE economic substance regulations. All entities/ licensees, including those who do not undertake relevant activity, Via RAK ICC portal by a registered agent only (online form), By 23 June 2020 (extended from 7 June 2020), Only entities/ licensees that are carrying out relevant activity, By 7 June 2020 (extended form 31 May 2020), Sharjah Airport International Free Zone (SAIF), International Free Zone Authorities (IFZA), By 9 June 2020 (extended from 31 May 2020), Via portal link here (excel form to be downloaded and uploaded once completed), All banks and other licenses financial institutions, Via CBUAEIRR - CBUAE Integrated Regulatory Reporting System hosted in Central Bank Service Portal (online form), 1 This information is based on the guidance issued by authorities and may be applied differently in practise. Companies need to define a reporting period when submitting a notification of the UAE’s Economic substance regulations. As a member of the OECD Inclusive Framework, and in response to an assessment of the UAE’s tax framework by the European Union (“EU”) Code of Conduct Group on Business Taxation, the UAE introduced a Resolution on the Economic Substance (Cabinet of Ministers Resolution No.31 of 2019, the “Regulations”) on April 30, 2019. UAE entities that are directly or indirectly owned by the UAE government (both federal and local) are specifically excluded from the Regulations. Similar to the economic substance notification, the report also requires details in relation to the parent company, ultimate parent company, and ultimate beneficial owners of the licensee. entities (both companies and branches) should assess whether they fall under the UAE Economic Substance rules (in 2019) and which of the below compliance obligations they may have (if any): also make an assessment as to whether it can satisfy the economic substance tests prescribed by the regulations. These are: the Ministry of Finance Resolution No. 31 of 2019), (the “Regulations”) on 30 April 2019. The UAE rules are, in part, a reaction to the UAE having been once placed on the EU’s list of non-cooperative tax jurisdictions. UAE Economic Substance Regulations (‘ESR’) – Annual Notification User Guide S HARJAH M EDIA C ITY (Shams) Version 1 15 June 2020. As per the ESR regulations, UAE onshore and free zone entities (referred to as ‘licensees’) that carry out any of the specified relevant activities need to demonstrate adequate economic presence in the state with respect to those activities. Penalties for failing to notify the Regulatory Authority are between AED10,000 and AED50,000. Failure to comply with the Economic Substance Regulations UAE will result in the following penalties; Failure to file Notification – AED 20,000 Does not submit a Report or required documentation – AED 50,000 Does not meet the Economic Substance Test – AED 50, 000 Provides inaccurate information – AED 50,000 Failure two years in a row – AED 400, 000 Economic Substance Regulations As part of the UAE’s commitment as a member of the OECD Inclusive Framework, and in response to an assessment of the UAE’s tax framework by the European Union Code of Conduct Group on Business Taxation, the UAE issued Economic Substance Regulations (Cabinet of Ministers Resolution No. Annual Notification to the ADGM Registration Authority, as required under Article 8(1) of the UAE Economic Substance Regulations. ... All UAE entities which fall within the scope of the Updated ESR will be required to submit (or re-submit) an economic substance notification to the UAE … The reporting period in accordance with the rules is calculated … Set preferences for tailored content suggestions across the site, UAE Economic Substance Regulations: Updated notification filing requirements. On 30 April 2019, the UAE introduced Economic Substance Regulations (ESR) under the Cabinet of Ministers Resolution No.31 of 2019. As per the recent Economic Substance Regulation, UAE onshore and free zone companies and other UAE business forms (referred to as “Licensees”) are required to notify to the Relevant Authorities as to whether they are conducting the relevant activity or not as per the regulation and required to file the necessary details as mentioned in the Notification form. The deadlines for filing economic substance notifications are on the horizon (or indeed just passed). This might not be simple in cases where the licensee is conducting multiple relevant activities that are governed by different regulatory authorities (for instance, lease-finance and distribution and service centre activities for a mainland company are regulated by the Central Bank and Ministry of Economy, respectively). 215 of 2019) on the regulations was issued on 11 September 2019.In consultation with the OECD and the EU, amendments were made to this legislation by Cabinet of Ministers Resolution No. The Economic Substance Regulations UAE (ESR UAE) requires certain licensees to comply with Notification & Return filing obligations. The UAE introduced Economic Substance Regulations (“the Regulations”) that became effective as of 1 January 2019.