Economic Substance Notification
Filing in the UAE

Banking Businesses

Insurance Businesses

Investment Fund Management Businesses

Lease-Finance Businesses

Headquarter Businesses

Shipping Businesses

Holding Company Businesses

Intellectual Property Businesses

Distribution and Service Centre Businesses

the Licensee and Relevant Activity are being directed and managed in the UAE;

the relevant Core Income Generating Activities (CIGAs) are being conducted in the UAE; and

the Licensee has adequate employees, premises, and expenditure in the UAE. In addition to an annual notification requirement, Licensees that undertake and earn income from a Relevant Activity are also required to file an Economic Substance Return within 12 months from the end of the relevant financial period (see Administration).

Have adequate supervision of the outsourced activity; and

Ensure the outsourced activity is conducted in the UAE; and

Ensure the outsourcing provider has adequate substance in the UAE; and

Ensure there is no double-counting of the outsourcing providers' resources. The above can be evidenced through contractual agreements that govern the relationship and responsibilities of each party.

Purchases goods from a Foreign Connected Person; and

Import those goods into the UAE; and

Distributes those goods outside the UAE. A UAE entity is considered engaged in a Service Centre Business if it:

Provides services to a Foreign Connected Person; and

Those services are in connection with the Foreign Connected Person's business outside the UAE. The economic substance requirements for a Distribution and Service Centre Business apply to UAE entities whose main activity is distribution and/or service center operations. Licensees engaged in Banking, Insurance, Investment Fund Management, Lease-Finance, Shipping, or Headquarter Business may also purchase goods for, and/or provide services to foreign group companies as a normal part of their business operations. To prevent duplicate reporting, such Licensees are not also considered engaged in a Distribution and Service Centre Business. UAE entities that purchase and sell goods from and to third parties, or that provide services to third parties, are not subject to the Regulations (as a Distribution and Service Centre Business).

Only holds equity interest(s) in juridical person(s); and

Only earns dividend and capital gains from its equity interest(s) A UAE entity that holds other assets or earns other forms of income will not be considered a Holding Company Business. Where the holding of such other assets or the performance of other commercial activities constitutes a different "Relevant Activity" (e.g. a Lease-Finance Business), the UAE entity would be subject to the Regulations in respect of that other Relevant Activity.

Comply with existing reporting/compliance requirements under the regulations applicable to the Licensee; and

Have adequate employees and physical assets (e.g. premises) A Holding Company Business is not required:

to be “directed and managed” in the UAE (unless otherwise provided for under the rules and regulations of any Regulatory Authority’s); or

To have/demonstrate adequate expenditure in the UAE.

A Connected Person, or

in consideration for funding research and development by another person situated in a country other than the UAE;

Licenses the IP asset to one or more Connected Persons, or

otherwise generates income from the asset in consequence of activities performed by Foreign Connected Persons.

Has taken on the responsibility for the overall success of the group; or

Is responsible for an important aspect of the group’s performance.

Penalty of AED 10,000 to 50,000; and

Deemed failure to demonstrate economic substance in the UAE Failure to demonstrate sufficient economic substance in the UAE for the relevant Financial Year: First failure - Penalty of AED 10,000 to 50,000; and

Information exchange with the foreign competent authority of (1) parent company, (2) ultimate parent company, and (3) ultimate beneficial owner. The second consecutive instance of failure

Information exchange with the foreign competent authority of (1) parent company, (2) ultimate parent company, and (3) ultimate beneficial owner; and

Penalty of AED 100,000 to 300,000; and

Trade / commercial license could be suspended, withdrawn, or not renewed.

Assess what (if any) Relevant Activities it has performed during the financial period (applying a “substance over form” approach);

Assess the amount and type of income earned (if any) from the Relevant Activity during the financial period;

Hold board meetings with a quorum of directors physically present in the UAE;

Ensure board meeting minutes are signed and maintained in the UAE;

Identify the amount and type of expenses and UAE based assets (incl. premises) in respect of the Relevant Activity, and ensure access to assets (incl. premises) can be demonstrated (through agreements and financial records)

Identify the number of UAE based full-time employees or other personnel (and their qualifications) responsible for carrying on the Licensee’s Relevant Activity; and

Ensure control and supervision over any outsourcing arrangements can be demonstrated, e.g. through contractual agreements. Additional actions may be required to ensure a Licensee can demonstrate sufficient economic substance in the UAE for a relevant financial period, and the considerations above may differ where a Licensee has either a Holding Company or a High-Risk IP Business.