United Arab Emirates Enacts Economic Substance Legislation

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The United Arab Emirates have implemented economic substance law: Cabinet Resolution No. 31 of 2019 with the aim to address the CCG’s (the EU’s Code of Conduct Group [Business Taxation]) substance requirements; following suit with many other international financial centres.
The UAE was blacklisted in March, after the EU’s Code of Conduct Group named it as being one of the jurisdictions considered to be” facilitating foreign structures or arrangements aimed at attracting overseas profits that is not representative of real economic activity in the jurisdiction” the CCG’s so-called Criteria 2.2.

Cabinet Resolution No. 31 2019, requires relevant companies that are conducting certain core business activities within the jurisdiction, such as:

Incurring operating expenses and taking relevant management decisions.
Directors, management and an appropriate number of qualified staff members will have to be physically present in the UAE.
Companies will have to incur sufficient expenses and have sufficient physical assets in the UAE
Companies will have to control the execution of activities outsourced to third parties.
Companies must adjust their internal procedures by ensuring that their boards have frequent quorate meetings in the UAE, with the minutes recorded, noted and signed by all attendees. All records of meeting minutes must be stored as a hard copy within the UAE.

For legal entities such as branches, representative offices and other companies Any entities who are managed by a sole Director, such as branches, representative offices and legal entities, the manager must be physically present in the UAE when making the main decisions about the company’s general operation.

Companies that fall within the legislation’s scope have to start filing and submitting annual reports no later than 12 months after their financial years end, with the first reports being due in April 2020. UAE-based Holding companies will be subjected to less extensive requirements as per the resolution.

Fines of up to 50,000 dirham will be imposed for late reporting. Failure to meet the mandatory substance requirements will risk a fine of up to 300,000 dirham and possible licence suspension, deregistration or even compulsory liquidation.