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ADGM Ends 2020 with Significant Growth and Partnerships Amidst Covid Pandemic Challenges

Abu Dhabi Global Market (ADGM) ends 2020 on a strong note despite all-round disaster caused by Covid-19 pandemic. 2020 is marked as the record year of achievement for ADGM with remarkable growth in key areas of fintech, regulation, sustainable finance and arbitration.

Amidst the adverse impact of the pandemic, ADGM continued to register steady growth in its three authorities namely the ADGM Financial Services Regulatory Authority (FSRA), the ADGM Registration Authority (RA), and the ADGM Courts. ADGM increased the number of registered licences by 43%, totalling 3,211 by year-end 2020. Assets increased by 193% totalling over USD 85 billion.

H.E. Ahmed Ali Al Sayegh, Minister of State (UAE) and Chairman of ADGM noted: “The year 2020 had been a trying period for the UAE and its community. However, the timely intervention and invaluable responses from the UAE leadership, the Abu Dhabi government and authorities have helped the country and its people to overcome the challenges brought on by the pandemic. The UAE economy is also well underway to recovery and further growth.”

“Despite the strong headwinds from the pandemic, ADGM grew to become more agile and responsive to the needs of its stakeholders and customers. We have achieved better results and developments than expected this year. We had welcomed the successful amendment of ADGM’s Founding law, launched several transformational initiatives, formed historical partnerships, and also established greater outcomes in the FinTech, arbitration, sustainable finance and academy fronts. I would like to express my sincerest gratitude to the Abu Dhabi leadership and government, our partners and customers for their unwavering support of ADGM. All these are possible only because of their trust and vote of confidence in us,” the Chairman of ADGM highlighted.

H.E.Ahmed Ali Al Sayegh also commented saying, “2020 marks the fifth year in operations for ADGM as an International Financial Centre. The ADGM team is committed to better serve the needs of its community and will continue to do our part in bolstering the financial development, growth and economic sustainability of Abu Dhabi and the UAE. We look forward to 2021 with anticipation and great hope for our nation.”

ADGM marked its 5th anniversary in 2020 and finished the year by hosting the fourth edition of its flagship event, the FinTech Abu Dhabi Festival, in association with the Central Bank of the UAE (CBUAE).

More than 7,500 delegates from over 110 countries participated in this event held in a virtual format and was a record success. FinTech AD convened the world’s foremost policymakers, regulators, investors and FinTechs to a digital platform and hosted leading initiatives including the Government FinTech Forum, the FinTech100 and the Innovation Challenge.

2020, also saw the official launch of the ADGM Digital Lab enabling the rapid prototyping and adoption of digital solutions aiding businesses to overcome their pain points and accessing new market opportunities for companyformationin-AbuDhabi and showcased ADGM FSRA’s growth as a financial regulator.

ADGM Academy has been expanded in co-operation with the Human Resources Authority (HRA) and First Abu Dhabi Bank (FAB) and the Abu Dhabi Commercial Bank (ADCB) to create an education platform for young Emiratis. Together, these four institutions will launch The Bankers Programme, a new initiative to support the government’s requirements for vital professions guided by the UAE Central Bank and in line with FAB’s talent employment and management requirements.

ADGM also exhibited significant progress in Sustainable Finance and has hosted the second edition of its flagship Abu Dhabi Sustainable Finance Forum serving as a background to several high-profile announcements, including the region’s first green Real Estate Investment Trust (REIT), as well as the second round of signatories of the Abu Dhabi Sustainable Finance Declaration.

2020 also witnessed ADGM and the Ministry of Climate Change and Environment releasing the ‘State of Sustainable Finance’ report, underscoring the collective achievements by private and public sector stakeholders. This year also saw agreements with Israeli bank Hapoalim and Israel Securities Authority.

ADGM also expanded its partnership network with globally recognised institutions and regulators such as the Aurora50, Abu Dhabi Exports Office, the International Renewable Energy Agency (IRENA), Companies House Gibraltar, the British Virgin Islands Financial Services Commission, and ArbitralWomen, among others and had entered into a total of 208 MoUs, including 88 International MoUs and Statements of Cooperation (SoCs).

2020 showcased ADGM’s commitment to its community members through various support and relief measures introduced including an array of fee reductions, waivers and refunds, including a 100% waiver on continuation fees, annual fund fees and commercial licence renewal fees, and a 50% waiver on any new supervision fees, a 50% refund of supervision fees, and a 50% reduction on the incorporation fee for new ADGM companies boosting up businessset-up-in-Abu Dhabi.

UAE Aims for One Million Companies over Next Ten Years through Landmark Economic Policy Reforms

The recent ground-breaking policy reforms allowing full ownership rights to the foreign companies are primarily designed to enhance the openness of UAE’s business climate and increase the number of businesses operating in the UAE to one million within the next decade jumping three-fold from 300,000 currently, the Minister of Economy added.

In a virtual media briefing, the economy minister Abdulla Bin Touq Al Marri highlighted the amendments to the commercial companies law would increase the business transparency and attract more foreign investment and help diversify the economy and ensure additional non-oil income.

“In light of the recent economic changes and challenges that were witnessed globally as a result of the Covid-19 pandemic, the realisation of this vision and this transformation has become even more necessary and urgent.”

Al Marri also pointed out the key changes will boost investor’s confidence and “provide a greater opportunity for establishing productive partnerships between citizens and foreign investors” and also enable the nation ” to contribute to the creation of new job opportunities, development of market movement, localization of technology, and development of skills and human capabilities.”

Other notable personalities who attended the briefing included Dr Ahmad Belhoul Al Falasi, Minister of State for Entrepreneurship and SMEs; Dr Thani bin Ahmed Al Zeyoudi, Minister of State for Foreign Trade; Abdullah bin Ahmed Al Saleh, Undersecretary of the Ministry of Economy; Dr Obaid Saif Hamad Al Zaabi, CEO-Securities and Commodities Authority.

“We are expecting new companies to come in, more FDI (foreign direct investment) flow to the country and we are going to support those companies and direct them to right clusters and projects within the country,” Thani Al Zeyoudi, minister of state for foreign trade noted during the briefing.

The compulsory provision for a UAE national or a UAE-owned company acting as an agent has been abolished as part of the new measures. A stipulation requiring a company chairman to be an Emirati and for boards to have a majority of Emirati directors has also been abandoned.

The reforms have been welcomed by the business community as it would reduce the costs of doing business and improve competitiveness and stock market listings.

“There is no doubt that the new amendments to the commercial companies law will encourage local and foreign investment. It will encourage initial public offerings and listings in the country’s capital markets and will increase the rate of transactions and attract foreign capital, which in turn will increase the depth and size of financial markets capitalisation,” Obaid Al Zaabi, chief executive of the Securities & Commodities Authority said during the event.

Al Marri added the UAE currently has around 300,000 companies of various formats and also highlighted saying, “National companies represent 99.3 per cent of this figure, and the new amendments are designed to increase the number of companies operating in the country to one million within the next ten years.”

“Besides, they will accelerate the rate of transformation of SMEs in general into joint-stock companies listed in the financial markets to secure public financing, risk-based capital financing activities market development is also expected to be an outcome,”  emphasized Al Marri.

Al Falasi described the initiatives that are being undertaken in partnership with various concerned government establishments to lay sound foundations for the transformation towards a more flexible economic model including updation of the regulations and legislation governing economic, commercial and investment activities in the country.

Launching and implementing new initiatives and policies that would enhance the national economy’s ability to accommodate the changes in the current global economic scenario, develop future sectors and generate opportunities are also on the UAE government’s agenda to promote new businesssetupinDubai.

The minister for SMEs pointed out that the new reforms would help protect the interests of both the UAE and the foreign investors by reviving the market movements, increasing the number and size of companies and projects in the country, and diversifying the foreign investment base.

Al Zeyoudi emphasized the efforts of the UAE to bring about a qualitative transformation to the existing economic model encouraging Emiratis to directly engage in business and invest in the local market.

“It will also boost the UAE’s ability to attract start-ups, innovative companies, and SMEs focusing on advanced technology,” Al Zeyoudi noted.

Al Saleh said as per the new law, the formation of a foreign company branch can now be possible without a Local Agent.

Recent policy reforms made UAE companies more optimistic than their global peers about profitability returning to pre-Covid levels in the next two years as business slowly recovers with more investments pouring in for doingbusinessinUAE.

Extension of Economic Substance Regulations (ESR) Notification and Filing Deadline as Per Recent Announcement of The Ministry of Finance, MOF UAE

The Ministry of Finance, MOF UAE has announced on 31st December 2020 EXTENDING DEADLINE for submission of ESR Notification and report through a circular in the Ministry’s official website.

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.

All applicable companies falling under this ESR notification and filing requirements must submit a notification and supporting documents online via MOF portal latest by January 31st as no further extension will be given.

The Ministry extended the deadline to support businesses that might have been adversely impacted due to Covid 19 and partly because the MOF ESR portal only went live during the first week of December 2020 when MOF started getting ESR notifications and reports through this portal.

MOF has recently conducted virtual seminars to update companies on the use of the ESR portal and help them submit their necessary ESR documents electronically. More than 5000 companies participated in these seminars.

MOF has also released a set of templates for ESR Notification and ESR Report useful for preparing and analyzing ESR related information that needs to be submitted as a mandatory compliance requirement.

On 10th August 2020, the cabinet of Ministers issued Resolution No. 57 of 2020 concerning Economic Substance Regulations, “Resolution 57” which amended and repealed Resolution 31.

The MOF, UAE strongly recommends that all business entities assess and reassess whether and which of their business activities fall within the scope of the Economic Substance Regulations and how satisfactorily the businesses can ensure Economic Substance Test in respect of each relevant activity.

UAE Introduces New Regulation on Loan Based Onshore Crowdfunding

First time in history, the UAE Central Bank (CBUAE) has launched a new Regulation of new activity on “Loan Based Crowdfunding” in mainland UAE that spells out the rules for issuing Crowdfunding Licenses under the CBUAE.

Crowdfunding is the method of raising funds usually through the licensed online platforms to financially support projects, ventures and charities. It aims to amass small funds from a large number of individuals or organizations who invest in crowdfunding projects for a potential profit and reward.

Crowdfunding is typically technology-driven alternative finance of crowdsourcing that is witnessing rapid growth worldwide for both investors and businesses. The online crowdfunding platforms act as intermediaries raising funds from people instead of conventional sources of funds such as banks, mutual funds etc.

The regulation, currently in force was released recently and published in the official gazette on 28th of October 2020.

The CBUAE launched this regulation for loan based Crowdfunding Platforms (CFPS) operating in onshore UAE to license and regulate online platforms connecting lenders and borrowers. It also aims to support administering the resulting loans.

Equity and donation-based crowdfunding investment platforms are exempt from this regulation.

This Crowdfunding Regulation is fairly wide in scope and encompasses companies that are not based in the UAE if

  • Incorporated or hosted in the UAE
  • Use an address in the UAE for correspondence
  • Provide Crowdfunding to the clients residing in the UAE

 

Crowdfunding platforms located outside the UAE including those based in the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) also come under the purview of this new regulation.

The crowdfunding company needs to be a company incorporated in the UAE under the Commercial Companies Law excluding Joint Partnership and Simple Commandite Company.

Depending on the category of license, there is a capital requirement of AED one million or AED 300,000. The crowdfunding company also needs to submit a bank guarantee equal to the value of the paid-up capital.

The same level of governance rules and oversight applies to a crowdfunding company as that of a regulated financial entity including the management fit and other appropriate criteria, internal controls, risk management, auditing and conflict of interest.

The crowdfunding companies must comply with all the applicable Emiratization requirements as and when required.

Every platform engaged in loan-based crowdfunding is categorized based on annual cumulative loans facilitated that dictates minimum capital requirement and are

  • Category 1 with AED 5 million cumulative loans facilitated in a year
  • Category 2 of smaller platforms with less than AED 5 million cumulative loans facilitated in a year

 

The borrower in crowdfunding activity needs to be a UAE registered company and can not be an individual, sole proprietorship or a company registered outside the UAE.

The regulation doesn’t impose any restrictions on the lenders onboard, however, grouped the lenders based on the financial status as

 

  • Retail lender and not a market counterparty
  • A market counterparty with evidence of assets exceeding AED 2 million outside of the primary residence with a self-attestation of being a market counterparty

 

The regulation imposes various obligations on the crowdfunding company such as assessing the suitability of lenders, anti-money laundering, borrower diligence and risk assessment through loan administration.

The regulation also specifies clear disclosure requirements for both the borrowers and lenders.

Individual and cumulative lending limits are also imposed for retail or market counterparty lenders as well as borrowing limits, AED 10 million per borrower in any financial year.

The crowdfunding funds must be held in segregated accounts with the UAE banks subjected to regular audits.

The regulation is a welcome move for the UAE’s financial industry and would increase the funding options for customers.

JAFZA and ECI Collaborate to Offer Credit and Export Financing Solutions

Jebel Ali Free Zone, Jafza, flagship free zone of DP World, UAE Region’s leading business and logistics hub showcased its customers the trade payments protection solutions it has initiated in partnership with Etihad Credit Insurance, ECI, the UAE Federal export credit company on 19th November 2020.

Jafza has launched ECI’s tailored solutions to support UAE based businesses and increase export trade by offering protection against commercial and non-commercial risks.

During a well-attended webinar titled, “Etihad Credit Insurance Collaboration: Trade with Protection”, Jafza based companies were guided through the ECI’s solutions as part of the free zone’s drive to ensure the growth of businesses, while lowering the cost of export, by reducing the risk of non-payments, and funding, by lowering banking pre and post-shipment funding in the current unprecedented economic climate.

More than 8000 companies in the Jebel Ali free zone are set to directly benefit from the strategic collaboration of Jafza and ECI, giving the export business a major boost and a competitive edge in the regional and global markets.   

Jafza’s partnership with ECI will be a game-changer for the export of goods and services as ECI’s support increases cash flow,  enables trade and contributes towards sustaining growth even as the markets recover.

Jafza believes that ECI’s range of export credit, financing and investment insurance products will directly benefit Jafza’s customers, particularly the SMEs.

The shared objectives of ECI and Jafza represent the vision of the leadership to establish the UAE as a preferred global hub for exports. Jafza is working closely with ECI to take this partnership forward and reinforce its commitment to business continuity with confidence.

ECI has issued more than 1600 revolving credit guarantees additionally for a total exposure amount of Dhs. 2 billion in the first half of 2020, which is equivalent to Dhs. 4 billion guaranteed non-oil trade coverage. About 55 per cent of the total revolving credit limits were issued to large private exporters and 17 per cent to SMEs, while the remaining 38 per cent were issued in favour of UAE Government companies.

The main sectors to benefit from this credit lines are Foods and Beverages, Healthcare and Pharmaceuticals, Automotive, Petrochemicals, Cable, Steel and Building materials, accommodating some of the major sectors present in the free zone. ECI’s solutions were chosen by Jafza for its customers after carefully analyzing the advantages they deliver.

The range of conventional and Shariah-compliant export credit financing and investment insurance solutions offered by ECI cover the exporters and the entire supply chain against commercial and political risks, allowing Jafza customers to manage and mitigate risks effectively.

Jafza, which generated trade worth 99.5 billion USD in 2019, is widely responsible for promoting the non-oil sector of Dubai and the UAE,

ECI plays the role of a catalyst in accelerating the country’s non-oil economy trade, investments, and strategic sectors development, in line with the UAE National Agenda leading to the UAE Vision 2021.

Jafza is one of the world’s leading free trade zones and is home to over 8000 multinational companies. Jafza accounts for 23.9% of total FDI (Foreign Direct Investment) flow into Dubai, sustaining the employment of more than 135,000 people in the United Arab Emirates.

Jafza has a strategic location providing market access to more than 3.5 billion people and creates an integrated multimodal hub offering sea, air and land connectivity, complemented by extensive logistics facilities. The port and free zone contributed 33.4 per cent of Dubai’s GDP in 2017. Jebel Ali Port and Free Zone are considered by the global business community as the most ideal location for a business set up in Dubai.

Jafza is the most sought after business hub between Asia, Europe and Africa, connecting some of the fastest growing and consumer markets globally. With over 30 years’ experience, Jafza focuses on long term customer relationships, building alliances with multinational investors and providing world-class infrastructure and support.

Jafza, a business opportunity provider offers its customers easy and efficient access to substantial business opportunities in the region. The Jafza ECI collaboration will further boost FDI flow and more number of global investors are expected to opt for Jafza company formation.

DIFC ADGM Sign Memorandum of Understanding with Israel’s Largest Bank Hapoalim

Dubai International Financial Centre (DIFC), a top ten global financial centre, and the leading financial hub for the Middle East, Africa and South Asia (MEASA) region and home to the largest most developed financial and FinTech ecosystems in the region with a presence of 72 countries, has signed a memorandum of understanding with Hapoalim Bank of Israel, one of the largest bank and financial services company in Israel. The agreement aims at cooperation across financial activities and will benefit both countries in a wide range of mutually beneficial opportunities.

Bank Hapoalim, the leading bank in Israel and headquartered in Tel Aviv is engaged in corporate and private banking services. The bank was founded in 1921 and is a publicly-traded banking corporation organized and operating under Israeli law listed on the Tel Aviv Stock Exchange (TASE).

As per the agreement signed on 21st November 2020, Bank Hapoalim will become a global partner of the DIFC and will also become a part of DIFC worldwide network of banks, financial centres, regulators and companies disrupting financial and technology sectors and embracing the highest legal, regulatory and operating standards.

The MOU signed with the DIFC will enable bank Hapoalim to avail banking and innovation opportunities in the MEASA regions.

The agreement reached will enable DIFC to help Emirates facilitate economic growth from the finance and innovation sectors. Besides, the MOU will support the DIFC vision to drive the future of finance from Dubai. The agreement also demonstrates the contribution of DIFC to the UAE’s willingness to forge business ties with Israel and promote Israeli business setup in Dubai.

The agreement also marks a step towards bank Hapoalim establishing the bank’s first regional presence outside Israel. Both the entities recognize the importance of collaborative efforts through knowledge sharing, delegations hosting and industry events promotional activities.

FinTech and investment experts from Hapoalim bank will also be invited to take part in exclusive events including the forthcoming DIFC Fintech Hive Investor Day and explore opportunities for company formation in Dubai.

Arif Amiri, CEO of DIFC Authority commented: ” Our partnership provides Bank Hapoalim with access to the most developed, broad and deep financial ecosystem in the region, allowing them to capitalize on the most lucrative banking, capital markets,  asset management, innovation and fintech opportunities available.”

Arif Amiri also said: “We hope the agreement will provide us with a unique Dubai-Israel opportunity to accelerate our future of finance agenda and stimulate innovation with Bank Hapoalim through the DIFC Innovation Hub.”

Dov Kotler, CEO of Bank Hapoalim remarked: “It will provide Israeli fintech entrepreneurs with a gateway to the dynamic and vibrant Dubai ecosystem, and help foster cross border innovation. It is an honour to be the first Israeli bank to construct this important bridge for innovation.”

The CEO of Bank Hapoalim also added: “The agreement signed with Dubai International Financial Centre is an important milestone. We hope to serve, extend and strengthen the financial relationship between our two countries.”

Emirates NBD, a Dubai based lender signed an MOU with Israel’s Bank Hapoalim in September 2020 allowing Israeli clients to transact directly in the UAE.

Abu Dhabi Global Market (ADGM) and Bank Hapoalim have also signed an agreement to jointly innovate on fintech services, ecosystems and market opportunities, the official news agency WAM reported on 21st November 2020.

As per the agreement, ADGM and Bank Hapoalim will collaborate on fintech projects in the fields of international trade, business and financial services activities between the UAE and Israel.

ADGM and Bank Hapoalim will also support fintech companies and entrepreneurs seeking to scale their presence across the UAE and Israeli markets.

Dhaher bin Dhaher Al AlMheiri,  CEO of the ADGM Registration Authority said: ” ADGM is continuously working with strategic partners, locally and internationally, to further the Abu Dhabi and UAE’s economic plans and technology agenda, and we are excited to partner with Bank Hapoalim to advance the banking and financial services in both jurisdictions. “

Dov Kotler, CEO of Bank Hapoalim nominated speaker at the upcoming FinTech Abu Dhabi festival commented: ” The agreement with Abu Dhabi Global Market is a breakthrough pact that we hope will serve to extend and strengthen the financial cooperation between the UAE and Israel. It will enable fintech companies, customers of Bank Hapoalim, access to a new world of opportunities. It is a great honour to be the first bank to sign such an agreement that will contribute to the establishment of the relationship between our two countries and economies.”

Dubai Chamber Hosts Israeli Business Delegation to Pave the Way for Investments and Trade Ties

A high-level Israeli delegation led by the Federation of Israeli Chamber of Commerce (FICC)  and consisting of representatives of the FICC, Israeli Manufacturers Association and the Israel Export Institute visited Dubai Chamber of Commerce and Industry headquarters on Monday, 9th November 2020 to discuss and lay out the groundwork for exploring prospects of trade and cooperation between Dubai and Israel and to facilitate business set up in Dubai.

The invitation for Israeli delegation was sent by the President and Chairman of Dubai Chamber of Commerce and Industry, H.E. Hammad Buamim who also serves as the Chairman of World Chambers Federation.

The visit of the business delegation is a part of the trade mission organized by the Dubai Chamber and aims to familiarize Israeli businessmen with the economy, business environment and competitive advantage of Dubai.

The delegation also aims to set the stage for Emirati and Israeli business ties and promote relations with the institutions in industry, trade and investment of both countries.

The visit was in line with the efforts of Dubai Chamber to maximize opportunities for Dubai’s dynamic private sector, create fertile ground for investments from local, regional and global stakeholders, and provide training for education and skills to boost the capacity of its members to carry out business activities.

Importantly, the visit was organized only after two months of signing a strategic partnership between Dubai Chamber and Tel Aviv Chamber of Commerce, represented by the FICC to oversee bilateral economic cooperation benefitting both countries’ business ecosystems.

As per press release, with the partnership agreement, both the nations will produce a joint study identifying synergistic sectors of mutual interest, plan a roadmap of virtual events and commit to organizing a business delegation and mutual hosts. It would also include hosting a joint business forum and support for new businesses, startups and scale-ups with available resources and programs.

Through the entire week, the delegation met with officials from Dubai Exports, Dubai Airport Free Zone, Dubai South, Expo 2020 Dubai, Jebel Ali Free Zone, DP World, Dubai Future Foundation, Dubai World Trade Centre and Dubai Multi Commodities Centre. The Israeli delegation also visited the Sheikh Mohammed Centre for Cultural Understanding.

The delegation was headed by Uriel Lynn, President of the FICC and also accompanied David Castel, CEO, Haifa Chamber of Commerce, FICC; Amir Shani, Vice President, FICC; Adiv Baruch, Chairman, Israel Export & International Cooperation Institute; Zeev Lavie, VP, International Relations Division & Business Development, FICC; Gadi Ariely, DG, Israel Export & International Cooperation Institute; Sabine Segal, Deputy Director-General for International Business Affairs Israel Export and International Cooperation Institute; and Avshalom Vilan, Secretary-General, Israel Farmers’ Federation.

H.E. Hammad Buamim and Dubai Chamber officials and directors received the delegation and HE. Buamim expressed his optimism about the prospects for developing and promoting Dubai- Israel trade. He also emphasized saying that there exists a huge potential for companies of both countries to explore and forge mutually beneficial partnerships and capitalize on new market opportunities.

H.E.Buamim also highlighted the competitive advantage that Dubai can provide Israeli companies as a strategic trade hub offering access to the emerging markets across the GCC and Africa and South Asia.

Dubai Chamber’s President and CEO also stressed upon the fact of Dubai’s strengthening position as a worldwide preferred market for startups and noted that the Emirate continues to launch new business incentives to attract innovative entrepreneurs and top talents, including long term residency visas and recently a virtual work visa for Dubai company incorporation.

There is a growing demand for high tech, pharmaceutical and electronic products in the UAE generating numerous investment opportunities that Israeli companies can benefit from, given their strong expertise and advanced solutions in these fields, H.E. Buamim commented.

Sustainable Agriculture, food security banking, fintech, cybersecurity and space economy have also been identified as high potential areas where the UAE and Israel can build new partnerships, Dubai Chamber’s head noted.

Uriel Lynn, President FICC described the visit as an important step towards developing UAE-Israel trade relations, promoting mutual understanding and facilitating cross-border cooperation across several economic sectors of mutual interest.

Understanding the Economic Substance Regulations

Subsequent to the consultations with European Union and Organization for Economic Co-operation and Development OECD, the Cabinet of Ministers of UAE updated the 2019 Cabinet Decision No. 31, pertaining to the Economic Substance regulations (ESR). The upended regulations were announced by the Cabinet Resolution No. 57 in August 2020. Additionally, the Ministerial Decision No. 100 was released that gave supplementary information on the implemented Relevant Activities Guide.

As per the laws mentioned under Economic Substance Regulations, it will be applicable in retrospect from January 2019 on al licensees in UAE. Thus, all licensees will need to re-evaluate their ESR categories and make the relevant changes as per the newly amended laws and regulations. It will require all licensees to again file the FY 2019 notifications at the Ministry of Finance portal, while the ESR reports will be required to be uploaded within 12 months. The portal will be live in December 2020.

Key Amendments

As per the amendments done in August 2020 in the Economic Substance Regulations, here is a quick purview:

Role of FTA and RA: UAE Federal Tax Authority (FTA) is now the National Assessing Authority and will oversee the enforcement of economic substance tests. While the Regulatory Authorities shall be responsible for collection and checks on the authenticity of reports and notifications submitted by the license holders.

Amendment of the term Licensee: It now stands for unincorporated partnerships, juridical individuals that carry on with relevant activities that is companies established in the Free Zones- Abu Dhabi Global Market and the Dubai International Financial Centre. Those that are no longer under the ESR include sole proprietors, foundations and trusts.

Exemptions to Licensees: In the past, the ESR exemptions were granted to companies/entities with 51% indirect/direct government ownership has been revoked.  Now, only these licensee categories are exempted:

  • UAE offices of foreign companies
  • Tax residents staying away from UAE
  • Investment funds
  • Licensees granted exemption by Ministry of Finance (they will be required to file notifications and sufficient evidence for exemptions)

Specification on Notification

Now on, exempted licensees and licensees carrying on with relevant activity have to be done within 6 months of the FY end. While the deadline is within 12 months of the year end- December 2020.

Clarifications on ESR Test

There are no major changes to the ESR tests. However, some changes that have been included are that the directors of the licensee do not have to be UAE resident, but the Board of directors need meet in UAE based on the activity levels of the Licensee.

Economic Substance Report

The company needs to submit the ESR to the MoF while the Licensee’s FY report has to contain:

  • Category of relevant activity that is conducted
  • Gross income, type of operational costs and assets in UAE
  • Place and location of business
  • Details of full-time employees in UAE
  • Financial statements
  • Declaration if or not the Licensee adheres to the Economic Substance Test
Companies that need to comply with the ESR

All of the businesses and companies that are registered in the UAE doing relevant activity need to comply with the provisions of the ESR. These include:

  • Banking and Insurance
  • Distribution and Service Centers​
  • Finance – Lease Business
  • Investment Fund management companies
  • Holding Company Business 
  • Shipping companies
  • Intellectual property Business

Penalties

There has been an increase in the penalties. In the first year, failure to submit report or the requirements of the ESR is AED 50,000. In the second year, it is AED 400,000. If the Licensee fails to submit notifications, the levy is AED 20,000. If there is continuous non-compliance, the license will be revoked.

Thus, the new regulations will ensure that the Licensees will undertake the required measures to adhere to the current Economic Substance Regulations to streamline and fall within the purview of the government required compliances.

The Ultimate Beneficial Ownership (UBO) Regulation in the UAE: Procedural Amendment

Cabinet Resolution No. (58)/ 2020 regulating Procedures related to Beneficial Owners (the ” Resolution “) came into force on the 27th of August 2020 superseding earlier cabinet resolution of 34 of 2020.

The Resolution imposes new procedural requirements for companies, registered and licensed in the UAE on disclosure and record-keeping to enhance transparency in the UAE’s business climate and develop effective and sustainable executive and regulatory mechanisms on beneficial owner data.

The Resolution requires the UAE licenced companies to prepare and file an Ultimate Beneficial Owners’ (UBOs’) register, a Partners’ or Shareholders’ register and a Nominee Directors’ register with the relevant UAE authority.

The requirement of maintaining and filing Partners’ or Shareholders’ register has already been there in the UAE under the Commercial Companies Law 2015 including respective free zone companies regulations and the Nominee Directors’ and UBOs’ register are newly introduced requirements.

The Resolution is applicable for all companies registered and licensed in the UAE excluding companies in financial free zones (Dubai International Financial Centre and Abu Dhabi Global Markets) and companies directly or indirectly wholly owned by Federal or Emirate.

UBOs’ register needs a careful analysis of a company’s corporate structure, management and control to identify and disclose the real beneficiaries who are natural persons and ultimately own or control a company through the direct or indirect ownership of a minimum 25% of company’s shares. The real beneficiaries also have the right to appoint or dismiss the majority of Directors and/or Managers.

In absence of natural persons owning a minimum of 25% of the company’s shares, then any natural person exercising control over the company by other means shall be identified as the UBO. In case, any natural person doesn’t satisfy this condition too then any natural person responsible for the senior management of the company shall be deemed as the UBO.

The UBO register must document beneficiaries particular about

  • Name, Nationality, Date and Place of Birth
  • Address
  • The basis of and the date when the real person has become the UBO
  • Passport details
  • Emirates ID
  • The date when the natural person ceases to be the UBO

Register of Partners/ Shareholders must contain information about the number of ownership interests held by each partner or shareholder including voting rights attached to such ownership interests and the date of acquisition of ownership interests. It also requires details of any trustee with rights and powers in respect of the company as evidenced from the document establishing a trust.

Register for Nominee Director/ Manager must have details of Directors/ Managers and must be a natural person serving in a Director capacity and acting following guidelines, instructions, or will of another person, the Nominee Manager.

As per the Resolution, the companies must notify the relevant authority about any change or revision in the information provided within 15 days of such change or revision and the registers are required to be updated accordingly.

Companies failing to comply with the requirements of this Resolution, the UAE Ministry of Economy will impose sanctions on these companies. The administrative sanction details are yet to be published.

There should be the primary contact in the company as an authorized agent for submitting information to the authority as well as receiving notifications if any.

All information provided in the registers is to be kept confidential and unavailable to the public domain as per the privacy protection policy of the UAE.

Over the past years, some free zones in the UAE e.g. Dubai Multi Commodities Centre, Jebel Ali Free Zone, TECOM already implemented requirements of UBO information during registration and licensing of companies. The recent announcement of Resolution 58 will now bring uniformity amongst all free zones and mainland companies.

UAE Unveils Onshore Trust Law: A Legislative Framework for Wealth Management

The UAE cabinet, headed by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Ruler of Dubai approved the issuance of a new Federal Decree-Law on Financial Covenants. The law provides a legislative framework that will regulate and boost the country’s wealth management sector and help protect investors and attract foreign investment.

The Federal Decree is an innovative and future-oriented legislative framework accommodating the needs and expectations of both family business owners and other business owners and investors.

The onshore trust law comes in the support and enhancement of the growing wealth management sector in the country. It will act as an integrated system for companies and individuals owning various capital and financial rights and willing to hand their wealth over as a financial covenant to a trust managed by competent and qualified persons or institutions, well versed with various investment patterns and risks due to lack of money management expertise and enough time.

Family-owned businesses, the socio economic cornerstones in the UAE for many years will be the top beneficiaries of the Decree-law as the founders and owners of these companies and businesses, will be able to develop long term stable and sustainable plans for the protection and succession planning of their companies’ assets.

Family business owners are often faced with issues related to the family business continuity and succession, and the Federal Decree will provide solutions to these issues.

Besides the family business, the legislation will also promote the investment infrastructure in the UAE as an additional financial tool for financing and investment in the hands of the investors.

The Decree-Law will help in establishing trust structures onshore as a basis of company and asset holding arrangements similar to the types available in common law jurisdictions such as the UK, Jersey, BVI and Cayman, and protect the wealth of family-owned businesses.

The Federal Decree includes various types of covenants with specific purposes, such as a ” Charitable Trust” created for charitable purposes, or a private trust created to deal in securities and financial markets or for establishing retirement funds or ensuring that benefits are provided to the beneficiaries in exchange of regular contributions paid for the covenant.

Financial Free Zones, the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market are excluded from implementing the provisions of the Decree-Law as these zones already have trust laws and their legislations.

The law also highlights the ” bond covenant ” and its importance as the basic document that includes all terms and conditions such as the beneficiary, the conditions for dealing in funds, the method for appointing, removing and replacing the trustee, the effects of termination of the covenant, method of appointing the guard of the covenant with details of executive powers and ways to increase the covenant funds.

The Decree-Law emphasizes a forward-looking initiative of the UAE cabinet to create a competitive business climate and expand the legal framework to serve business owners and attract foreign investors.

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