UAE economic substance

From 1 January 2019, active UAE-registered companies engaged in ‘Relevant Activities’ must i) maintain economic substance in the UAE and ii) annually submit an economic substance declaration to the UAE authorities.

  • What are Relevant Activities?

    • UAE companies engaged in the following activities must meet economic substance requirements:
      • Holding companies;
      • Headquarter companies;
      • Intellectual property;
      • Investment fund management;
      • Lease – finance business;
      • Shipping;
      • Banking;
      • Insurance;
      • Distribution and service centres.
    • A definition on each of the activities above can be found in Article 5 of the UAE Economic Substance Regulations.
  • What economic substance requirements must I meet?

    • Economic substance requirements vary according to the business activity. For example, holding companies solely holding shares in other entities have lower reporting obligations than high-risk intellectual property (IP) business. Refer to Article 5 of this Ministerial Decision for sector-specific guidelines;
    • In general, a UAE company meets economic substance requirements if:
      • It conducts income-generating activities in the UAE;
      • It is managed and controlled from the UAE i e the board of directors is present in UAE when making business decisions;
      • It rents a physical office space in the UAE;
      • It either has full-time employees in the UAE or a local supplier to conduct the main business activities from the UAE;
    • Companies that conduct more than one ‘Relevant Activity’ must meet economic substance requirements for each activity.
  • What information should I provide to the UAE Government?

    • Every company registered in the UAE must annually inform the UAE Government i) whether the company is engaged in a ‘Relevant Activity’ ii) if its gross income is subject to tax outside the UAE and iii) about its financial year-end;
    • In addition, those UAE companies undertaking a ‘Relevant Activity’ must supply the following information annually:
      • The type of ‘Relevant Activity’ in which the company is engaged;
      • The main income-generating activity;
      • The value and type of income and operating expenses and assets related to that ‘Relevant Activity’;
      • The place of business, property or equipment used to carry out the ‘Relevant Activity’;
      • The number of full-time employees;
      • Declaration of whether the company has met the requirements of the Economic Substance Test.
    • Additional information must be provided for those entities carrying out a high-risk intellectual property business or outsourcing their Relevant Activity.
  • What happens if I do not meet the economic substance requirements or I supply inaccurate information?

    • The UAE authorities may share our Client’s business and personal information to the foreign government in the country where the entity is incorporated, or where the parent company or ultimate beneficial owner are resident;
    • Administrative penalties and/or potential suspension, revocation or non-renewal of the business licence may also apply.

Conclusion

For more information on UAE economic substance requirements and how they may affect your business, contact us.

Contact us

For additional information on our company registration services in UAE, please contact our in-house country expert, Ms. Chrissi Zamora, directly:
client relationship officer - Chrissi