On 28 May, the UAE Ministry of Finance (MoF) issued a Covid-19 Industry Advisory Notification (IAN). The IAN provides relaxation of certain measures related to meeting requirements prescribed under the UAE Economic Substance Regulations (ESR) for the period affected by Covid-19. The measures are in line with those implemented recently by offshore jurisdictions such as Jersey, BVI, Guernsey, Bermuda and others, which introduced the ESR.
ESR require the licensees who conduct relevant activities and generate income therefrom, to meet the economic substance tests. This includes a requirement to hold board meetings, with both a quorum and majority of those voting being physically present in the UAE.
The UAE MoF has recognized that businesses around the world and in the UAE might be required to adjust their operating procedures to address disruptions caused by Covid-19. In particular, the pandemic might affect the mobility of individuals, either as a result of travel restrictions or due to self-isolation or quarantine.
This alert discusses the key highlights from the IAN, to be considered by UAE-based businesses for the financial year 2020.
“Directed and managed” test
Practically speaking, if a company would normally be required to hold directors’ meetings in the UAE, such meetings could be held virtually due to travel and social distancing restrictions. In such cases, the UAE MoF and Regulatory Authorities should not regard this as failing to meet the economic substance test, provided the company has internal policies and supporting documents to confirm inability of “physical presence” in the UAE. Companies might also consider making a live recording of such meetings undertaken during this special situation and digitally store them as proof of adequate documentation. The regulatory authorities have six years from the end of the financial year to determine whether a licensee has met the ESR tests.
Also, companies have been urged to make every effort to otherwise comply with full substance requirements (including filing deadlines), as a practical and reasonable approach.
Due to Covid-19, the first set of ESR filing requirements (ES Notification) has been extended to 30 June 2020 by the MoF, with no changes to the ES Return filing due date.
According to the ESR and related guidance, each regulatory authority has been mandated to set out its own filing deadline and reporting manner. Thus, it remains unclear whether such extension of the deadline for filing ES Notifications would be applied by default by regulatory authorities where earlier due dates had already been prescribed. For example, 31 May for DAFZ licensees, 7 June for DACC, and 12 June for DIFC licensees, etc.
Based on communication with some of these authorities, we understand that their ES Notification deadlines remain unchanged, thus far.
The Ministry of Economy (MOE) also issued their notification form. While the MOE has not expressly indicated a due date, based on the IAN from MOF, the 30 June 2020 deadline should also apply for all MOE filings.
The Notification issued by the MoF is a welcome step, considering the practical challenges faced by companies – including movement restrictions.
However, given the forthcoming ES Notification filing due date (no further extensions expected beyond 30 June 2020), it would be prudent for UAE entities to undertake the economic substance impact assessment at the earliest in order to file the ES Notification with the Regulatory Authorities by the due date.