UAE: Notifications, reports under economic substance regulations

UAE: Notifications, economic substance regulations

The UAE Ministry of Finance on 22 October 2020 published “templates” for filing notifications and reports under the UAE economic substance regulations.

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All UAE businesses (including those that had previously filed their economic substance notifications by 30 June 2020) are now required to file (or re-file) a notification through the Ministry of Finance’s dedicated portal.

The economic substance notification and report is required to be filed within 12 months following the end of the financial year (with the first report due by 31 December 2020 for the financial year ended 31 December 2019).

While the economic substance notification template is broadly similar to the form issued by many regulatory authorities, additional details are to be provided with regard to reporting in the UAE for the following:

  • All branches of a licensee carrying out relevant activities
  • Confirmation if the licensee meets the definition of an “exempted licensee”
  • Parent company, ultimate parent company, and ultimate beneficial owners of the licensee

In order to substantiate meeting the core-income generating activity test for each relevant activity, the report provides flexibility to licensees to explain why core-income generating activities have not been performed in the UAE (if applicable). Additionally, while the same core-income generating activities 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 economic substance report requires licensees to provide the accounting profit/(loss), in addition to the “relevant income” earned from each of the relevant activities. While attaching the financial statements is mandatory along with report, 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 conducting multiple relevant activities that 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 economic substance 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 the economic substance 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.


KPMG observation

Given that the Ministry of Finance portal is expected to be launched shortly and that the due date for filing the first economic substance report is fast approaching, these templates will help businesses to start collating the information and documents required for submission along with the economic substance notification and report in advance. Tax professionals expect a user guide to be released shortly on the procedures and clarification on filling the forms.

Read an October 2020 report prepared by the KPMG member firm in the UAE

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