Tax Flash - 22/10/2020

On 22 October 2020, the UAE Ministry of Finance (MoF) published templates for filing notifications and reports under the UAE Economic Substance (ES) Regulations.

Pursuant to release of the new UAE ES Regulations, all UAE businesses (including those that had earlier filed the ES notifications by 30 June 2020) are now required to file (or re-file, as the case may be) notification through the MoF’s dedicated portal. While the ESR portal is yet to be launched, the MoF has published templates for re-filing such notification and the ES report required to be filed within 12 months following the end of the licensee’s financial year (first report due by 31 December 2020 for the financial year ended 31 December 2019).

While the ES notification template is broadly similar to the form issued by many regulatory authorities under the erstwhile ESR, additional details are to be provided for the following:

• All branches of a licensee carrying out relevant activities
• Confirm if licensee meets the definition of ‘exempted licensee’ under the new ES Regulations
• Parent company, ultimate parent company and ultimate beneficial owners of the licensee

Further, our key initial observations on the ES report template are as follows:

• In order to substantiate meeting the core-income generating activity (CIGA) test for each relevant activity, the report provides flexibility to licensees to explain why CIGAs have not been performed in the UAE (if applicable).
• Additionally, while the same CIGAs are currently listed in the template for all activities, it is expected that this will be rectified in a later version of the template.
• The ES report requires licensees to provide the accounting profit/(loss), in addition to the ‘relevant income’ earned from each of the relevant activity(ies).
• While attaching the financial statements is mandatory along with report (as also set out in the Regulations), it remains unclear whether these need to be audited.
• Licensees would be required to determine their primary/main regulatory authority. This might not be simple in cases where the licensee is carrying on multiple relevant activities which are governed by different regulatory authorities (for instance, lease-finance and distribution and service centre activities for a mainland company are regulated by the Central Bank and Ministry of Economy, respectively).
• The ES report requires specific declarations for meeting adequacy (qualified employees, expenditure and physical assets), directed and managed test, and reduced substance tests for holding companies.
• Detailed information is requested in case each of the outsourcing providers is involved.
• Similar to ES notification, the report also requires details in relation to the parent company, ultimate parent company and ultimate beneficial owners of the licensee.
• The report also seeks to identify differences in information provided in the notification, which is also required to be provided in the report, and reasons for the same.
• In addition to information required in the report, licensees can also optionally include any additional documentation and information to demonstrate substance.

Given that the MoF portal is expected to be launched shortly and the due date for filing the first ES report is fast approaching, these templates will help businesses to start collating the information/documents required for submission along with with ES notification and report in advance. Also, we can expect a user guide to be released shortly by the MoF on the procedures and clarification on filling the forms.