NEWSLETTER,U.A.E Archives

NEWSLETTER,U.A.E

Corporate Tax on Corporate Income: UAE Announces New Tax Regime for the First Time

July 12, 2022

The UAE Ministry of Finance (MoF) announced on 31 January 2022 to introduce federal corporate tax or Corporate income tax (CIT) regime that will apply to all UAE businesses except for the entities involved in the extraction of natural resources. Under certain conditions, the UAE CIT regime may also apply to individuals who own a commercial registration to perform such activity.

The federal CIT will come into effect from 1 July 2023 across all seven individual Emirates for the first time. The UAE, in its support of the OECD efforts to create a global minimum CIT rate, has announced the introduction of a corporate tax regime complying with the new international tax standard.

The MOF recently shared more details about the regulation and launched a three-week online public consultation with the stakeholders, business advisors and tax professionals revealing several important pieces of information about when what and how of the new corporate tax regime.

The Timeline

On 1 July 2023, the new CIT regime will come into force for full financial years.

Any company that follows a fiscal year starting on 1 July 2023 and ending on 30 June 2024, would be subject to corporate income tax starting 1 July 2023. The due date for the first tax return filing would be likely at the end of 2024.

Any company that follows a calendar year starting 1 January 2023 and ending 31 December 2023, would be liable for paying CIT for corporate income starting 1 January 2024 and filing would be likely due towards the middle of 2025.

Registration with the Federal Tax Authority (FTA) and obtaining a tax registration number will be mandatory for all companies liable for the CIT. The companies must submit the tax returns within nine months of the ending of the tax period accompanied by supporting schedules and payments.

What is Corporate Tax? Why does the UAE introduce CT? When will the UAE CT regime become effective?

The Tax Structure

In line with the minimum tax rate proposals of OECD under the base erosion and profit shifting (BEPS) initiative, different tax rates have been designed that will protect small businesses while levying higher tax rates on large multinational corporations. No tax will be imposed for an annual taxable income not exceeding AED 375,000. The tax rates will be:

For the businesses in mainland UAE, a 9% CIT rate will apply on annual income exceeding AED 375,000.

UAE CIT will apply for Free zone businesses and will be required to register and file a CIT return. These businesses, however, will continue to benefit from CIT holidays or Nil taxation subject to meeting all regulatory requirements with no business conducted with mainland UAE

A higher tax rate will apply to large multinationals that meet the criteria under ‘Pillar Two’ of the OECD having consolidated global revenues exceeding AED 3.15 billion

Scope Applicability and Exemption

All entities engaged in doing business in UAE will be subject to the new federal CIT at 9% unless exempted. Businesses and commercial activities across all the seven emirates will come under CIT.

Individuals holding an official licence or permit for doing business or professional practising will also come under the new CIT tax regime.

Businesses engaged in the extraction of natural resources will continue to be subject to the USE tax issued by the respective emirate and will not be subject to CIT.

Individuals earning income in their personal capacity e.g. salary, or investment income as long as the income-generating activity does not require a commercial license will not come under the CIT regime.

Transfer Pricing

Compliance with the transfer pricing rules and documentation requirements set as per the OECD Transfer Pricing Guidelines is mandatory for all UAE businesses now.

Withholding Tax

No withholding tax will be applicable on domestic and cross-border payments of any nature.

Foreign Tax Credits

Any foreign CIT levied on UAE taxable income shall be allowed as a tax credit against the CIT liability.

CIT Administration

UAE Federal Tax Authority (FTA) shall be responsible for the administration, collection and enforcement of CIT. Businesses will be required to register for CIT purposes and will be required to electronically file one CIT return per financial year.

There will be no requirement for provisional or advance CT filings or any advance tax payments. A UAE group of companies may form a tax group that can be treated as a single taxable person subject to fulfilling certain conditions. A single tax return for the entire group will need to be filed.

The UAE MOF plans to issue detailed information on the CT regime sometime during 2022.

Potential impact assessment of the CIT regime will be crucial for all businesses in terms of their operations and preparation for CIT compliance requirements.

All businesses and commercial activities need to evaluate if the existing tax function including people, processes, systems and technology are adequate to effectively address the requirements of the CIT regime.

Businesses must also critically review if accounting policies and data management systems are appropriate for compliance management with both CIT and VAT.

All UAE businesses must also Identify potential exposures and opportunities to drive tax efficiencies from both a tax cost and administrative point of view before CIT implementation such as restructuring, transfer pricing etc.

Business setup consultants in Dubai UAE with proven knowledge in accounting, corporate taxation and Free Zone operations can help businesses with early planning and preparation of any corporate tax issues.

The UAE Ministry of Finance (MoF) announced on 31 January 2022 to introduce federal corporate tax or Corporate income tax (CIT) regime that will apply to all UAE businesses except for the entities involved in the extraction of natural resources. Under certain conditions, the UAE CIT regime may also apply to individuals who own a commercial registration to perform such activity. The federal CIT will come into effect from 1 July 2023 across all seven individual Emirates for the first time. The UAE, in its support of the OECD efforts to create a global minimum CIT rate, has announced the introduction of a corporate tax regime complying with the new international tax standard. The MOF recently shared more details about the regulation and launched a three-week online public consultation with the stakeholders, business advisors and tax professionals revealing several important pieces of information about when what and how of the new corporate tax regime. The Timeline On 1 July 2023, the new CIT regime will come into force for full financial years. Any company that follows a fiscal year starting on 1 July 2023 and ending on 30 June 2024, would be subject to corporate income tax starting 1 July 2023. The due date for the first tax return filing would be likely at the end of 2024. Any company that follows a calendar year starting 1 January 2023 and ending 31 December 2023, would be liable for paying CIT for corporate income starting 1 January 2024 and filing would be likely due towards the middle of 2025. Registration with the Federal Tax Authority (FTA) and obtaining a tax registration number will be mandatory for all companies liable for the CIT. The companies must submit the tax returns within nine months of the ending of the tax period accompanied by supporting schedules and payments. The Tax Structure In line with the minimum tax rate proposals of OECD under the base erosion and profit shifting (BEPS) initiative, different tax rates have been designed that will protect small businesses while levying higher tax rates on large multinational corporations. No tax will be imposed for an annual taxable income not exceeding AED 375,000. The tax rates will be: For the businesses in mainland UAE, a 9% CIT rate will apply on annual income exceeding AED 375,000. UAE CIT will apply for Free zone businesses and will be required to register and file a CIT return. These businesses, however, will continue to benefit from CIT holidays or Nil taxation subject to meeting all regulatory requirements with no business conducted with mainland UAE A higher tax rate will apply to large multinationals that meet the criteria under ‘Pillar Two’ of the OECD having consolidated global revenues exceeding AED 3.15 billion Scope Applicability and Exemption All entities engaged in doing business in UAE will be subject to the new federal CIT at 9% unless exempted. Businesses and commercial activities across all the seven emirates will come under CIT. Individuals holding an official licence or permit for doing business or professional practising will also come under the new CIT tax regime. Businesses engaged in the extraction of natural resources will continue to be subject to the USE tax issued by the respective emirate and will not be subject to CIT. Individuals earning income in their personal capacity e.g. salary, or investment income as long as the income-generating activity does not require a commercial license will not come under the CIT regime. Transfer Pricing Compliance with the transfer pricing rules and documentation requirements set as per the OECD Transfer Pricing Guidelines is mandatory for all UAE businesses now. Withholding Tax No withholding tax will be applicable on domestic and cross-border payments of any nature. Foreign Tax Credits Any foreign CIT levied on UAE taxable income shall be allowed as a tax credit against the CIT liability. CIT Administration UAE Federal Tax Authority (FTA) shall be responsible for the administration, collection and enforcement of CIT. Businesses will be required to register for CIT purposes and will be required to electronically file one CIT return per financial year. There will be no requirement for provisional or advance CT filings or any advance tax payments. A UAE group of companies may form a tax group that can be treated as a single taxable person subject to fulfilling certain conditions. A single tax return for the entire group will need to be filed. The UAE MOF plans to issue detailed information on the CT regime sometime during 2022. Potential impact assessment of the CIT regime will be crucial for all businesses in terms of their operations and preparation for CIT compliance requirements. All businesses and commercial activities need to evaluate if the existing tax function including people, processes, systems and technology are adequate to effectively address the requirements of the CIT regime. Businesses must also critically review if accounting policies and data management systems are appropriate for compliance management with both CIT and VAT. All UAE businesses must also Identify potential exposures and opportunities to drive tax efficiencies from both a tax cost and administrative point of view before CIT implementation such as restructuring, transfer pricing etc. Business setup consultants in Dubai UAE with proven knowledge in accounting, corporate taxation and Free Zone operations can help businesses with early planning and preparation of any corporate tax issues.

NEWSLETTER,U.A.E

UAE Economic Substance Regulations

June 27, 2022

The Economic Substance Regulation has been introduced in the UAE in April 2019 with the aim to curb harmful tax practices while at the same time complying with the global standards. It is a major step toward preventing businesses from unethically shifting their profits to jurisdictions that impose minimum or no income tax with the intention of taking advantage of their liberal tax regime.

In order to restrict this practice of profit sharing and to promote transparency, ESR laws impose an obligation on the businesses operating in UAE to have an adequate presence in the country. The regulation aims to demonstrate that these businesses have substance and legitimate operations in the UAE.

It applies to all UAE onshore as well as free zone legal entities that carry out one or more of the 9 ESR “Relevant Activities” referred to as “licensees”. These relevant activities include Banking, Distribution and service centre, Fund management, Headquarters, Holding company, Insurance, Intellectual property, Finance and leasing and Shipping.

ESR Filing Requirements

Entities that fall within the scope of the regulations have to file ESR Notification and submit ESR Reporting. The annual filing obligations for such entities are as follows:

Relevant Activities	Income Earned	Notification	Reporting
No	No	Not required	Not required
Yes	No	Must be filed within 6 months from the end of the financial year declaring that the entity undertakes Relevant Activity.	Not required
Yes	Yes	Must be filed within 6 months from the end of the financial year declaring that the entity undertakes Relevant Activity.	Must be filed within 12 months from the end of the financial year declaring certain business information demonstrating economic substance. The information includes income figures, expenses, assets, number of employees, etc.

Reporting Deadlines

Below are the reporting deadlines for a selection of financial year ends:

Fiscal Year End	Notification Filing Deadline	Report Filing Deadline
30 Jun 2021	31 Dec 2021	30 Jun 2022
30 Sept 2021	31 Mar 2022	30 Sept 2022
31 Dec 2021	30 Jun 2022	31 Dec 2022
31 Mar 2022	30 Sept 2022	31 Mar 2023

Penalty for Non-Compliance

In case of non-compliance with ESR regulations by the entities, Federal Tax Authority (FTA) can impose wide-ranging and significant penalties which are as follows:

Offense	Penalty in 1^st year	Penalty in the subsequent year
Failure to submit a Notification	AED 20,000	AED 20,000
Failure to submit an Economic Substance report	AED 20,000	AED 20,000
Failure to provide accurate or complete information	AED 50,000	AED 50,000
Failure to demonstrate sufficient economic substance in the UAE	AED 50,000	AED 400,000

The penalty can be imposed anytime within six years from the date of such violation. In case of persistent non-compliance, the entity’s license can be suspended, revoked or not renewed.

Why Accurate Assessment of Activities is Important?

Accurate assessment of the relevant activities is very important because failure to do so can result in huge penalties. Therefore, it is crucial for entities to undertake assessments on a yearly basis.

How Can IMC Group Help?

IMC Group can help you in regards to complying with ESR requirements and assist in the filing of the ESR notifications and ESR reports in an efficient and professional manner. We can help you in the following ways:

ESR Applicability Assessment

We conduct a detailed study of your business activities to assess the applicability of Economic substance regulations.

ESR Notification Filing

We provide support and guidance in preparing your ESR Notification and filing it with the Ministry of Finance as a part of ESR compliance.

ESR Report Filing

We provide support and guidance in preparing your ESR Report and submitting it as per the requirement of the Ministry of Finance.

Economic Substance Regulations Test and Compliance

We can assist in undertaking Economic Substance Regulations impact assessment and gap analysis audit to identify the non-compliant aspects. We guide you and recommend corrective or preventive actions to fulfill the requirements of ESR.

Submitting Appeal

We can assist you in submitting an appeal against the penalties that are already levied concerning ESR compliance.

Accounting and Bookkeeping

Our team can help you maintain proper and up-to-date accounting records as per IFRS accounting principles ensuring relevant activities and associated income are easily identifiable and presentable to authorities as and when required.

Contact IMC Group and easily navigate through the Economic Substance Regulation and guidelines based on your jurisdiction. Book a consultation with our experts now!

NEWSLETTER,U.A.E

Dubai: Announces New Rules for Digital Services Provision

June 10, 2022

The Vice President and Ruler of Dubai, Sheikh Mohammed bin Rashid announced on 14th March 2022, the enforcement of Law No. (9) of 2022 ‘Regulating the Provision of Digital Services’ in the Emirate of Dubai from 24th March 2022 to improve and enhance the quality of digital services in Dubai as well as to drive the emirate’s digital transformation journey. The law complements the federal digital and data laws in the UAE and mandates all Government departments to offer online services in multiple languages with no additional cost burden to the customer.

Dubai Government Media Office said, “Government entities and judicial authorities, including Dubai Courts and Dubai Public Prosecution, as well as non-government entities in Dubai, are required to provide digital services to their customers.”

It also added, “The chairman of the Executive Council of Dubai will issue a decision on the various stages of implementing the Law, in line with the recommendations of the Digital Dubai Authority.”

The law applies to both digital services provided by the Dubai government and non-government establishments and outlines key requirements for efficient and effective delivery of digital services.

The General Secretariat of the Executive Council, the Dubai Digital Authority (DDA) and the Dubai Electronic Security Centre (DESC) are held responsible as competent authorities to oversee the enforcement and implementation of the law that encompasses the delivery of digital services across the entire gamut of digital channels including websites and other internet applications.

A one-year grace period has been provided for meeting the requirements of the law and can be extended by the Executive Council of the Emirate of Dubai. The law speaks of phased roll-out and implementation of the provisions of the law.

The key features outlined in this law are:

1- The law is applicable throughout the Emirate of Dubai, including all the free zones in Dubai and the Dubai International Financial Centre (DIFC).

2- Digital services standards shall be documented and rolled out by the appropriate competent authority for effective implementation by the digital services providers once the technical and organizational requirements for the provision of digital services are identified and established.

3- Disruptions in digital services shall be an essential part of digital services standards needing adequate addressal by the digital services providers through business continuity and data security.

4- Data security and privacy requirements will be the vital features of these legal standards and shall address all requirements including data retention, data classification, data security and data accuracy. Privacy compliance programs must also be periodically reviewed to ensure the fulfilment of all requirements of the law.

5- The Dubai Development Authority (DDA) is responsible for approving the appropriate digital identification tools in line with the electronic transactions and trust services law of the UAE.

6- Digital services need to be provided in Arabic and English as a minimum to ensure accessibility to all Dubai residents.

6- All digital transactions shall be equal in status to physical transactions carried out in person.

7- Digital services provided in Dubai must be easily accessible and all customers are legally binding to update the information to digital service providers as and when necessary.

8- The digital services providers can outsource their services from a public or private sector company, with approval from the Department of Finance.

In Dubai, most of the government departments that previously needed residents to physically visit their offices for bill payments, and tenancy contract approvals have largely transitioned to online services mostly through app-based portals. An in-person visit is now sufficient to get a driving license or residency visa. Even setting up a business in Dubai has become much easier, faster and more affordable in the absence of bureaucracy and red tapes.

Additional technical guides and resolutions for effective implementation of the law shall be issued over the coming months by the DDA and other relevant authorities.

NEWSLETTER,U.A.E

Dubai: Witnessing a High Growth in Office Space Demand Spurred by Foreign Businesses

May 31, 2022

Recently a huge growth in demand for office spaces has been witnessed in Dubai intensifying at the highest rate in the last five years, the latest Real Estate Property Data revealed. Such an impressive hike in demand hasn’t been seen in years and this has happened at a time when a large number of foreign businesses are exploring office options for either relocating part of their business operations or expanding their businesses further in the UAE market.

Warehouse, retail and office spaces have been seen in high demand and the office space occupancy level touched 81% in the city, the highest since 2016. Rental prices soared significantly and went up by as much as 35% in all popular districts. CORE, the commercial real estate services firm reported.

A study conducted by Savills, one of the leading property agents in the world also recently reported that Dubai is, at present, the only city within the Europe, Middle East and Africa territory to record the highest office occupancy levels.

The office space demand boost has mainly been generated by businesses engaged in technology and services sectors including companies in the digital currency and Fintech fields. Dubai, in the last few months also issued a record number of new business licenses and Ejari, the mandatory registration of tenancy contracts by Rera.

Robert Thomas, Head of Real Estate Research and Advisory at CORE, noted, “A surge in enquiries is coming from EU/UK and other international markets wanting to expand in Dubai due to its favourable and open business environment.”

“Dubai is also seeing an influx of many international firms relocating their staff and operations from Russia and Ukraine,” he informed.

As per Robert Thomas, even though many existing businesses have adopted a hybrid working model in Dubai, the majority of employers are now getting their workers back to their offices and retaining existing office spaces.

As Dubai has put in place, progressive cryptocurrency regulations and frameworks, the city is also attracting many cryptocurrencies-related businesses, Thomas highlighted.

The UAE has recently announced several reforms including new visa rules for attracting tourists, global talents and foreign investments. As per CORE, these reforms can be “game-changing” and “an unprecedented catalyst” for the real estate market growth in Dubai.

Rental Prices

Dubai rental prices have been on the lower side from a global perspective however started marching northwards at the start of 2022. Rental prices for offices have begun to witness huge spikes at prime office locations as demand has grown significantly among tenants looking for larger floor spaces.

The rental prices are mainly soaring in those business districts which are popular with foreign businesses including Sheikh Zayed with leasing rates soaring by 35% during the first quarter of 2022 followed by One Central with a 29% jump, Business Bay and Jumeirah Lakes Towers with 29% hike and Downtown Dubai with16% increase.

Bur Dubai, Deira and Garhoud, the old Districts in Dubai which struggled earlier to maintain higher rental prices are also seeing price increases exceeding 10%.

In the first quarter of 2022, a total office space of 480,000 square feet was delivered in Dubai clocking a new high and bringing the office supply to 107 million square feet in the city.

NEWSLETTER,U.A.E

UAE: Compliance with VAT Regulations Rises During Q1 2022

May 11, 2022

The UAE Federal Tax Authority (FTA), in an official report dated 21 April 2022, revealed that the number of VAT registrants had increased to 367,157 in the first quarter of 2022, compared to 358,468 in Q1 of 2021, an increase of 2.42%.

In its second yearly meeting chaired by Sheikh Mohammed bin Rashid Al Maktoum, the Deputy Prime Minister and Ruler of Dubai; the FTA Board of Directors adopted the tax authority’s financial statements for 2021.

The meeting held at the FTA headquarters in Dubai reviewed a report on the FTA’s plans to develop and improve the procedures of UAE’s existing tax system in line with the best international standards and practices. Implementing systems and procedures for improved customer services through fast, accurate, and user-friendly digital platforms were also discussed in the meeting. The status of progress on developing the draft corporate tax law was also reviewed by the FTA board.

Upgradation of FTA Services

Directives were issued by the FTA Board Chairman, Sheikh Maktoum on maintaining the pace of upgrades made to the services of the tax authority, complying with international best practices and adhering to the digital transformation plans, specifically developed to boost the country’s competitive edge in terms of services provided to the taxpayers and help realize the country’s vision to become one of the world’s highest-ranking governments based on trust and performance.

The government of Dubai Media Office in a statement noted, “The directives aim at focusing on the customer and enhancing competencies to become a world leader in government services, drawing on the UAE’s ‘Principles of the 50’ and the terms of the new methodology for government action”.

Enhanced Customers Satisfaction

The reports which were presented in the meeting highlighted the efforts of FTA to maintain high scores in the service performance across all areas and activities. Sheikh Maktoum reviewed the plans of the tax authority to enhance services for ensuring satisfaction for all clients and representing all segments of society.

The FTA Chairman added, “The Federal Tax Authority is committed to strengthening its relations with all entities involved in implementing the tax system in the government and private sectors, and to fulfilling its role in driving nationwide economic diversification policies through the administration and collection of federal taxes, in line with best practices.”

“The authority is constantly reviewing the executive regulations it issues for each tax legislation to ensure top-level performance and streamlined procedures. The stages ahead will witness sweeping developments and upgrades to tax systems and procedures to enhance the quality of the FTA’s services,” Sheikh Maktoum highlighted.

Report

The report detailed the accomplishments of the tax authority over the last year and the first quarter of 2022, documented the status of progress made on existing projects and provided all statistics regarding Value Added Tax (VAT), Excise Tax, Tax Returns, tax payments, and all refund requests already processed.

The report revealed that compliance with tax regulations continued to grow in all the emirates across the UAE. The number of Excise Tax registrants has also grown, registering 1,398 numbers compared to 1,357 last year with an increase of 3.02%. Besides, the number of Tax Agents has also increased to 446 nos compared to 433 with a net increase of 3%.

New applications from UAE citizens for VAT refunds on expenses incurred on building new residences were promptly approved by the tax authority and the value of refunds totalled AED185,038,134 during the first quarter of 2022 compared to AED118,503,245 in the first quarter of 2021, registering a huge growth of 56.15%.

This staggering increase in refunds reflects the FTA’s commitment to streamlining online procedures of VAT refunds for UAE citizens building their new houses. This also highlights the country’s vision to develop a modern society with an affordable housing system for citizens and ensure their wellbeing. Enhanced customer satisfaction, as a policy and objective form the core of functionalities of all the government institutions including the FTA.

The report also highlighted the results of the implementation of two phases of the ‘Marking Tobacco and Tobacco Products Scheme’, aimed at preventing the sale or possession of all types of cigarettes including waterpipe tobacco (Mu’assel), and electrically heated cigarettes, not carrying the Digital Tax Stamps in local markets for tax evasion.

NEWSLETTER,U.A.E

New Visa Rules 2022: A Stimulus for UAE Startups and the Job Market

May 11, 2022

In April 2022, the UAE Cabinet, headed by Sheikh Mohammed bin Rashid Al Maktoum, the Vice President, Prime Minister and Ruler of Dubai, has rolled out flexible requirements for investors and entrepreneurs including the startup owners to apply for the UAE Golden Visa and Green Residency Visa under a new set of executive regulations. This is considered to be the most extensive set of reforms which will come into effect in September.

The startups in the UAE can now obtain the UAE Golden Residence visa, a long-term 10-year UAE residency visa more easily under the revised visa regulations.

The new Green Residence permits will allow the investors, partners, freelancers and self-employed individuals engaged in establishing or participating in commercial activities five years of residency in the country. It replaces the earlier residence permits that were valid for 2 years only.

The new system of entry and residence in the UAE will attract and retain global talents and a skilled workforce across the world and will make the local job market more flexible and competitive.

The new visa rules will enable the startups and SMEs to more conveniently hire foreign professionals and provide incentives for the investing communities to relocate to Dubai UAE due to the availability of talent pools. Professional Dubai Pro services can help startups and SMEs identify the most suitable and affordable ex-pats and recruit them for their organizations.

The new simplified visa rules will automatically boost the country’s investment segment increasing the likelihood of easy financing for the country’s startup ecosystem. Startups and SMEs can benefit significantly if they opt for outsourcing PRO Services in Dubai for facilitating fundraising activities.

Many small technology startups who can’t afford full-time professionals and are heavily dependent on freelancers, can now take a deep sigh of relief as the new visa rules will attract many such freelancers into the country. UAE is all set to witness an influx of technology professionals who can help realize the nation’s ambitious vision for the digital economy and new age of innovative and smart technologies such as AI, ML, IoT, AR, Big Data and many more.

Many startups and tech industry experts believe that the reforms will make Dubai and the other emirates more attractive to the short as well as long-term residents and professionals.

Many industry leaders confirmed that the new immigration system will act as an incentive to launch businesses in the UAE making significant and valuable contributions not only in the Emirates but the wider Middle East as well. The new rules will underscore Dubai’s growing role as the key catalyst in attracting businesses both in the region and globally.

The newly introduced job exploration entry visa doesn’t need a sponsor and addresses the long-existing issues of people coming to the UAE on tourist visas searching for jobs. This visa makes it legitimate for jobseekers to attend interviews and search for employment in the country without needing 30 or 90-day tourist visas to look for a job and subsequently shift to an employment visa after getting a job. The people, however, must meet certain skill sets outlined by the Ministry of Human Resources and Emiratisation. This will provide a huge stimulus to both startups and the job market in the UAE.

People from around the globe who are planning to visit the UAE either for business, jobs, or pleasure can now avail themselves of a variety of visa options without needing a host or sponsor for the first time. All entry visas, under this new system, are available for single or multiple-entry and can be renewed for similar periods with a validity of 60 days from their issuance date.

NEWSLETTER,U.A.E

UAE and South Korea Sign MoU to Promote Entrepreneurship and Support for SMEs

May 11, 2022

The UAE Ministry of Economy (MoE) and the Korea Federation of SMEs (KBIZ) have recently agreed to develop entrepreneurship and strengthen partnerships between SMEs through cooperation.

Abdullah Al Saleh, Under-Secretary of the Ministry of Economy; and Kim Ki-mun, Chairman of KBIZ, signed this MoU in the presence of UAE Minister of State for Entrepreneurship and SMEs, Dr Al Falasi.

Dr Al Falasi added, “The UAE attaches great importance to the development of the SMEs sector as one of the main pillars of the country’s new economic model and its strategic plans for the future in line with the ‘Principles and Goals of the 50’. The development of international partnerships is a major focus area of the UAE’s efforts in this regard, and South Korea is a major partner for the UAE in our efforts to develop entrepreneurship.”

“The signing of the MoU will help us strengthen the role of entrepreneurs and SMEs in the two countries in fields of economic cooperation and facilitate the development of partnerships, especially in the sectors of health technology and smart agriculture. It will also drive the growth of trade exchanges and stimulate the flow of quality investments in the fields of innovation, research and development,” the Minister highlighted.

The two countries agreed to jointly design partnership programmes to enable Emirati and Korean SMEs to make an easy entry into the markets of the two countries and prosper.

Knowledge sharing between the MoE and KBIZ on developing appropriate policies, programmes and legislations regarding entrepreneurship has also been part of this MoU to put the SMEs of both countries on stronger footings in terms of trade and investments.

Agreement reached on the development of a joint platform to support SMEs will help identify potential and promising investment opportunities in each other’s markets and will particularly help many aspiring Korean SMEs in company formation in Dubai.

MoU also highlighted the need for the exchange of market research and information, mutual participation in international entrepreneurship programs and extending expert support to the SMEs. While the entrepreneurship and SMEs sector account for 99% of the total companies in South Korea, the sector accounts for 98.5% of the private sector in the UAE.

In early April 2022, Korean Export-Import Bank (KEXIM) visited Abu Dhabi to explore ways of strengthening collaboration on export financing and discussed ways and solutions to co-finance Korean organisations looking toward doing business in Dubai UAE for import of goods and services from the UAE including projects undertaken by Korean EPC contractors, provided these projects use materials or expertise from the UAE.

The MoU is seen as a commitment between the two institutions to realize mutual

aspirations and objectives and in all expectations will have a significant positive impact on the export dynamics and relations between the UAE and South Korea and enhance their respective economies.

South Korea’s central bank in a statement, confirmed an agreement with the Central Bank of the United Arab Emirates (CBUAE) to extend a currency swap agreement for five years. The Bank of Korea and the CBUAE originally entered into a USD 5.5 billion currency swap deal which can be renewed and extended by mutual consent of the two countries.

NEWSLETTER,U.A.E

The First Virtual Assets Law in Dubai Establishes a New Regulator

April 6, 2022

Overview

As UAE takes giant strides toward becoming an international hub for virtual assets and generating long term economic growth through digital innovation, the country announces a new law for regulating virtual assets and creating a regulated onshore industry for such assets in Dubai.

On February 28, 2022, Law No. 4 of 2022 on the Regulation of Virtual Assets in the Emirate of Dubai, the “Virtual Assets Law” was approved by Sheikh Mohammed bin Rashid Al Maktoum, the Vice President and Ruler of Dubai.

The Virtual Assets Law applies to virtual asset services extended throughout the Emirate of Dubai and its special development and economic free zones with the only exception being the financial services free zone, Dubai International Finance Centre (DIFC).

Key Features of the Virtual Assets Law

1. A New Regulator for Virtual Assets

The Virtual Assets Law establishes the Dubai Virtual Assets Regulatory Authority (VARA) as the primary regulator of virtual assets in Dubai that is affiliated with the Dubai World Trade Centre Authority (DWTC). Under the Law, VARA focuses on promoting Dubai’s status as a regional and international destination in the virtual assets category and enhancing the digital economy of the emirate.

2. Broad Scope of the New Law

The scope of the Virtual Assets Law is large and the definition is quite broad. The new law defines virtual assets as a digital representation of value that can be traded, transferred, or used as an exchange or payment instrument or for investment purposes and can include tokens, cryptocurrencies and any other virtual asset determined by VARA.

3. Enforcement

The Virtual Assets Law came into force on March 11, 2022, and when the new law was published in the Official Gazette.

4. Authorization and Licensing Requirements

A broad range of activities requires authorization from VARA under the Virtual Assets Law, article 16. The Virtual Assets Law stipulates that applicants must establish Dubai as the headquarters for their business and must obtain a commercial business license from the relevant licensing authority in Dubai.

The Virtual Asset Law prohibits certain activities without authorisation from VARA. These activities include

Platform operations and management services for virtual assets
An exchange between virtual assets and currencies, whether domestic or foreign
Exchange between one or more forms of virtual assets
Transfer of virtual assets
Any custody as well as management and control of virtual assets
Virtual asset portfolio services, and
Virtual offering and trading services

5. Liaise with other Authorities

VARA is expected to liaise with the UAE Central Bank to implement measures to ensure the protection and stability of the financial system.

6. Responsibilities of the New Regulatory Authority

VARA, the new regulator has a broad mandate and some of the key responsibilities include

Ensuring beneficiary data protection
Regulating the operation and management of virtual asset platforms, service providers and all that relates to virtual assets, and
Authorizing exchange services between virtual assets and currencies or between one or more forms of virtual assets

Besides, VARA is also responsible for organizing, supervising and controlling the issuance and offering of virtual assets as well as prevention of illegal practices for increased transparency.

7. Economic Sanctions and Penalties

As per Virtual Assets Law, VARA is authorized to take various penal and economic sanctions including suspension authorizations, suspension of the activities of any virtual asset service provider and suspension of business dealings with any virtual assets in certain situations.

Conclusion

UAE is the Middle East’s third-largest crypto market, with a transaction volume exceeding $25 billion. There have also been several new developments in the regulation of virtual assets recently. Dubai Multi Commodities Centre (DMCC), the largest free zone in the UAE, set up a regulatory framework for crypto firms in collaboration with the Securities and Commodities Authority (SCA) in March 2021. Abu Dhabi Global Market (ADGM) has already enacted laws and regulations for controlling virtual crypto assets in its jurisdiction.

The recent enactment of the Virtual Assets Law together with these developments reflects the ever-growing interest in virtual assets in the UAE suggesting the country’s ever-growing willingness to embrace new innovative technologies and transform itself into a global leader in the sphere of virtual asset and blockchain technology.

NEWSLETTER,U.A.E

UAE Central Bank Forecasts Stronger Economic Recovery In 2022

April 1, 2022

The Growth Forecast

The UAE Central Bank (CBUAE) in its December report projected a stronger economic growth of 4.2% in 2022 more than the previously estimated 3.8%. The UAE’s economic recovery is expected to strengthen further in 2022 and the country’s banking system can support the financial system and its growth, CBUAE said.

The banking regulator convened a meeting with chief executives of national and foreign banks based in the UAE on Thursday, 16th December 2021 and remarked just after the meeting saying that the Emirates’ banking sector also demonstrated resilience amid the covid 19 pandemic, helped by the CBUAE’s Targeted Economic Support Scheme (TESS).

The ongoing support of the local financial system by the CBUAE through the Tess scheme was welcomed by the chief executives.

Rapid and widespread Covid-19 vaccination and testing drive for mitigating the pandemic

played the most vital role in strengthening the economic growth rate, the CBUAE 2021 second-quarter review reported.

The UAE celebrated the Golden Jubilee of the Union in 2021. “Looking ahead, expectations on the role of the banking sector will increase further,” remarked H.E. Khalid Mohammed Balama, governor of the CBUAE.

The governor emphasized saying “The banks will be expected to contribute significantly to our nation’s far-reaching and ambitious agenda, and to become leaders not only in the region but also in the global financial industry.”

The Tess scheme has supported the banks in liquidity management during the economic crisis caused by covid 19 as the CBUAE provided a stimulus package of Dh 100 billion consisting of a direct Dh 50 billion fund infusion through collateralized loans at no cost.

Earlier, during October 2021 the Chairman of the UAE Banks, Abdulaziz Al Ghurair highlighted that the banking assets of UAE are expected to grow by 8 to 10% in 2022 as the country’s economy continues recovering from the pandemic-led slowdown and benefitting from hosting Dubai Expo 2020.

CBUAE stressed that the banks in UAE need to endeavour actively towards achieving full compliance with Consumer Protection Regulations and Standards as these measures would boost consumer trust in the banking sector and positively impact the UAE banking industry and the national economy.

Other Positives

UAE is all set to witness a steady increase in government’s public spending, improved credit growth, higher employment and better business sentiment in 2022, the CBUAE predicts.

The economic activities in the non-oil private sector registered faster growth during December 2021, the IHS PMI data showed. Data also revealed that increased new order booking continued to support the expansion of economic activities in this sector.

Crude oil price gained almost 60% in 2021 and has been found moving higher during the first three trading weeks of 2022. More than 5% gains were registered by the global benchmark indices including Brent and WTI in the first week of the year taking oil prices to their highest since November 2021.

“Year-on-year residential real estate sales prices in Abu Dhabi rose for a third consecutive quarter, following five years of decline while declining in Dubai at a marginal pace. Both, the dirham effective nominal and real rates depreciated on a year-on-year basis due to lower inflation compared to main trading partners and in line with the US dollar trend,” the central bank highlighted.

Data released by the CBUAE also revealed that total bank deposits increased on both a yearly and quarterly basis. The rate of yearly Gross credit contraction also eased and registered moderate growth.

CBUAE also reported that on the back of economic recovery, financial soundness indicators remained mostly satisfactory.

Reforms- The Growth Enablers

2021 remained the year of reforms for UAE and the country, the 2nd largest economy in the Arab world witnessed numerous policy and administrative changes in legal, economic and social structures. All these reforms focused on enhancing the country’s business landscape, boosting foreign fund flow, acquiring high skilled professional and technical talents and providing incentives to companies for doing business in Dubai and UAE as a whole.

Some important reforms included changes in personal and labour laws, widening of longer-term residency visa rules, granting of 100% foreign ownership for onshore companies and very recently, the changing and shortening of workweek schedules in alignment with major economies in the world.

The cabinet also approved new regulations concerning industrial property law to further promote the intellectual property rights and patent registration process.

The new industrial property and patents law assumes particular importance in providing benefits to investors and academic institutions. R&D facilities, SMEs startups and technology companies are going to benefit the most.

All these reforms are designed for improving the business, investment and overall economy of the country. Garbis Iradian, Chief Economist, International Institute of Finance remarked, “New regulations could further help increase foreign direct investment to around $26 billion in 2022, one of the highest in terms of GDP among emerging and developing economies.” He also emphasized, ” These measures will boost efforts to diversify further the UAE’s hydrocarbon dependent economy, improve the business environment, make the economy more competitive and efficient, and thus raise potential growth.”

“In 2020, World Bank ranked the UAE among the top 16 countries out of 190 countries in terms of ease of doing business. I expect the announced measures or approved new regulations will improve further the UAEs business environment and rank the emirates among the top 10 best countries in the World in terms of ease of doing business by 2023. The manufacturing and trade sectors will benefit most,” the Chief Economist commented.

Dubai Budget 2022

Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, approved a general budget for the fiscal cycle of 2022-2024 with a total expenditure of Dhs 181 billion. Dhs 59.95 billion expenditure has been budgeted for 2022 with an operating surplus of Dhs1.8 billion representing 3% of the expected total revenue.

The Dubai Government continues its journey to realize its future goals of an accelerating economy and enhancing its business competitiveness by consolidating its position as a leading global commercial hub to attract foreign investors for company formation in Dubai.

The Takeaway

Besides CBUAE, most of the industry experts, entrepreneurs and financiers are very upbeat about UAE’s stronger economic growth in 2022 in light of the Expo and growth in the real estate, banking, finance and tourism sectors compared to the previous years. The government has also done lots of positive work in the last 12 months in terms of regulatory reforms and investments in the economy.

UAE with its world-class infrastructure, business-friendly policies, rich and attractive social life and the credible labour market is expected to attract high levels of FDI flow in its economy. The UAE authorities have been relentlessly striving for a diversified and knowledge-based economy and continuing its focus on a broad range of policy reforms, clean and renewable energy, innovative technologies and the fourth industrial revolution to accomplish socio-economic goals.

NEWSLETTER,U.A.E

Retail Payment Services and Card Schemes Regulations Marks an Innovative Era of Retail Digital Payment in the UAE

March 23, 2022

Key Highlights

RPSCS regulation came into force on 15.07.2021
Allows financial service companies and FinTech’s to participate in retail payment services
Ensures greater safety during retail digital payment
Includes four-category licenses with nine types of payment services

The Central Bank of UAE (CBUAE), vide Circular No.15/2021 dated 06.06.2021, issued the Retail Payment Services and Card Schemes (RPSCS) Regulation and stipulated the rules and conditions for acquiring and maintaining a licence for the provision of the retail payment services and card scheme operation.

The regulation was enforced on 15 July 2021, with a one-year time limit for transition, to all existing payment service providers and card schemes for obtaining the relevant licences.

Earlier to this regulation, UAE banks used to be the sole provider of retail digital payment services. However, since the introduction of this new regulation, other financial service providers including FinTech’s can now participate in providing such services.

CBUAE has rolled out this regulation to ensure safety, soundness and efficiency of retail payment services, enhance the reliability of card schemes and public confidence in Card-based payment transactions, create a level playing field for market participants through innovation, helping service providers adopt an effective and risk-based licensing requirement and promoting UAE’s status as a leading payment hub.

Key elements of the licensing regime

The key elements of the RPSCS regulation are as under.

1. The regulation mandates that no entity can provide or promote any retail payment service listed in the regulation without a CBUAE licence. The CBUAE licensed banks are exempted, however, need to notify the CBUAE if they plan to undertake retail payment services.

2. An entity intending to provide Retail Payment Services shall need to apply for one of the four listed categories of License, category 1,2,3 & 4, depending on the types of the Retail Payment Services in the UAE. The regulation specifies licensing of nine types of services as below.

Payment account issuance services
Payment instrument issuance services
Merchant acquiring services
Payment aggregation services
Domestic fund transfer services
Cross-border fund transfer services
Payment token services
Payment initiation services, and
Payment account information services

3. The principal business of the payment services provider (PSP) must be aligned with the retail payments service for which it is granted a payments licence.

4. For ancillary services beyond the scope of its licence, an entity must obtain approval of the CBUAE. A separate entity, duly approved by the central bank, needs to be created for this purpose.

5. The RPSCS regulation excludes its application to the payment transactions involving stored value facilities (SVFs), commodity or security tokens, virtual asset tokens, remittances or currency exchange operations.

6. RPSCS doesn’t cover Payment transactions made between payment service providers and settlement agents, central counterparties, clearing facilities and central banks, or payment transactions and related services between a parent undertaking and its subsidiary or between subsidiaries of the same parent undertaking as long as no intermediary is involved in these payment transactions. Technical support operations involving digital payments are also kept out of the purview of the regulation.

Condition and procedure for licensing

Article 4 deals with the licensing condition and stipulates that at the time of submission of application, PSPs seeking RPSCS license need to fulfil the Legal Form and meet the respective initial capital requirements per License Category specified in Article 6. They should also submit the necessary documents and information specified in the Central Bank application form as provided by the Licensing Division.

Article 5 for Licensing Procedure sets out that the licensing of Applicants shall be subject to the procedure envisaged in the Central Bank’s Licensing Guidelines and it is preferred that PSP management meets with the Central Bank’s Licensing Division before submitting a formal application.

Applications for CBUAE license under any of the Payments Category can only be made by a company incorporated per Commercial Companies Law. The regulation doesn’t throw much light on the eligibility criteria of companies incorporated in the non-financial free zones. Companies in financial free zones in DIFC and ADGM may not apply for payment services licenses.

Initial capital requirements

The regulation specifies the initial capital requirements for each type of licence, with the minimum levels determined based on the average monthly value of payment transactions and the sole exception being the payment initiation services and payment account information services, where an initial capital requirement of a minimum of AED 100,000 is required irrespective of the average monthly value of transactions.

The CBUAE expressly reserves the right to impose higher aggregate capital fund requirements if considered necessary.

Value of payment transactions exceeding AED 10 million for three consecutive amounts, attract higher aggregate capital fund requirement for a PSP and as determined by the CBUAE.

Card scheme

Card schemes are also regulated by RPSCS regulation that requires them to get a licence from the CBUAE. The conditions for these licences as well as the ongoing requirements of licensed card schemes are specified in article 18 of the regulation.

A card scheme may be a private or public sector entity with similar ongoing requirements as those specified for payment services including governance, risk management, reporting, auditing requirements, etc. CBUAE, however, is very discrete in issuing card scheme licenses.

Wage protection system

The RPSCS regulation also specifies participation and accessibility criteria to the wage protection system and allows PSPs to submit applications to the CBUAE to participate in and be given access to the system once approved by the Central Bank.

Conclusion

RPSCS Regulation can be seen as a regulatory enhancement journey of the UAE Central Bank for setting high standards of safety in digital payment systems. The new regulation also promotes competition and innovation and facilitates easier access to banking services in case of the non-availability of traditional banking services.

Business Admin & Finance

Organizational Support

Ongoing Support

Accounts

Financial Insights

Tax Solutions

Corporate Complaince

Outsourcing

Blog

What is Corporate Tax? Why does the UAE introduce CT? When will the UAE CT regime become effective?

Recent Posts

Get updated by Signupto our Newsletter!

Get Started

About

Locations

Please fill the Form

Get updated by Signup
to our Newsletter!