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Key Points of FAQ Regarding Economic Substance Regulations in the U.A.E.

Key Points of FAQ Regarding Economic Substance Regulations in the U.A.E

Key Points of FAQ Regarding Economic Substance Regulations in the U.A.E.

  

In April 2019, the U.A.E. Ministry of Finance announced Cabinet Resolution No 31 of 2019 (Resolution) on Economic Substance Regulations (ESR). The regulation is an element of Kingdom’s commitment to the OECD inclusive framework.

As per the regulations, the U.A.E. onshore and free zone companies along with other U.A.E. businesses (collectively known as Licensee) that conduct any of the listed ‘Relevant Activities’ to maintain an acceptable economic presence in the country related to the activities.

In continuance to the above, the Finance Ministry of U.A.E. recently published a list of 41 Frequently Asked Questions (FAQs) for addressing the apprehensions of impacted companies in relation to ESR. Along with listing down the FAQs, the Ministry has also offered valuable guidance on what steps a Licensee should take before the end of a specific financial year to be able to meet the compliance requirements related to the regulations. As per the stated guidance, a Licensee should –

  • Evaluate what Relevant Activities were being or are likely to be conducted during the financial period while applying a ’substance over form’ approach;
  • Evaluate the amount and type of income that is earned from the Relevant Activity in that financial period;
  • Organise board meetings with a particular required number of directors’ present in the U.A.E. document the important minutes of these meetings;
  • Investigate all the expenses incurred;
  • Study and document main U.A.E.-based assets like premises, which is related to the Relevant Activity;
  • Maintain relevant documents like agreements or financial records which support the assets and expenses;
  • Examine roles and responsibilities of the staff towards the Relevant Activity;
  • Analyse applicable outsourcing agreements;
  • Any other facets that may help Licensee to prove adequate Economic Substance in the U.A.E. for a relevant financial period.

 


  

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