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UAE Business Compliance Guide

Staying Compliant: Ongoing Responsibilities of UAE Businesses

Navigate the dynamic regulatory landscape of the United Arab Emirates (UAE) with our guide on the ongoing responsibilities for businesses. In the face of rapid changes and industry-specific nuances, stay informed about the latest legislations and measures to ensure sustained compliance, safeguarding both financial stability and business reputation in this thriving economic environment.

The UAE has implemented a series of legislations aimed at regulating and protecting businesses. Negotiating the swiftly changing regulatory environment, compounded by variations across industries and emirates, poses a formidable challenge for organizations striving to uphold compliance standards.

The ramifications of non-compliance are substantial, impacting both financial stability and reputational integrity. To assist in maintaining ongoing business compliance, familiarize yourself with the latest legislations and measures outlined below:

Key Legislation for Business in the UAE

 

1. Corporate Tax

Corporate tax is a form of direct tax levied on the taxable income of corporations and other entities from their business in a tax period. The companies will become subject to UAE Corporate Tax from the beginning of their first financial year, which starts on or after June 1, 2023.

Applicability of Corporate Tax

The Federal UAE Corporate Tax Law is broadly applicable across all Emirates and encompasses all businesses or business activities, except to the following exempt persons (subject to conditions):

a. The UAE Federal and Emirate Governments;

b. Companies entirely owned and controlled by a Government Entity;

c. Businesses involved in the extraction of UAE Natural Resources or related non-extractive activities that are subject to Emirate-level taxation;

d. Qualifying public benefit entities that are listed as per Cabinet decision;

e. Qualifying investment funds that meet the specified criteria;

f. Public or private pension or social security funds (subject to conditions);

g. UAE juridical persons wholly owned and controlled by certain exempted entities.

Rates of Corporate Tax

The Federal UAE Corporate Tax will be applicable at the following rates:

All businesses excluding Qualifying Free Zone Person Taxable Income not exceeding AED 375,000 0%
Taxable Income exceeding AED 375,000 9%
Qualifying Free Zone Person (subject to satisfying the conditions) Qualifying Income 0%
Taxable Income 9%
Non-Qualifying Free Zone Persons (who do not satisfy QFZP conditions) Taxable Income & Non-Qualifying Income 9%

2. Value Added Tax

The implementation of the Value Added Tax (VAT) (as per Federal Decree-Law No. (8) of 2017) in the United Arab Emirates (UAE) took effect on January 1, 2018. Applicable to all registered businesses in the UAE, whether operating in the mainland or free zones, VAT is imposed on the supply of goods and services at each stage of the production and distribution chain. The standard VAT rate stands at 5%, with certain goods and services subject to a zero rate or exempted.

Registration for VAT

A business must mandatorily register for VAT if:

a. The total value of taxable supplies and imports (excluding foreign businesses) exceeds the mandatory threshold of AED 375,000, over the previous 12 months.

b. The business anticipates that the total value of taxable supplies and imports (excluding foreign businesses) will exceed the mandatory threshold of AED 375,000 in the next 30 days.

A business may voluntarily register for VAT if:

a. The total value of taxable supplies and imports or taxable expenses exceeds the voluntary threshold of AED 187,500, over the previous 12 months.

b. The business anticipates that the total value of taxable supplies and imports or taxable expenses will exceed the voluntary threshold of AED 187,500 in the next 30 days.

3. Excise Tax

In 2017, the UAE implemented excise tax (as per Federal Decree-Law No. 7 of 2017), an indirect tax targeting specific goods known as ‘excise goods’ due to their potential harm to human health or the environment. These goods initially include:

a. Carbonated drinks

b. Energy drinks

c. Tobacco and tobacco products

After December 1, 2019, below goods were additionally added:

a. Electronic smoking devices and tools

b. Liquids used in such devices and tools

c. Sweetened drinks

Rate of Excise tax

Carbonated drinks 50%
Energy drinks 100%
Tobacco and tobacco products 100%
Electronic smoking devices and tools 100%
Liquids used in such devices and tools 100%
Sweetened drinks 50%

4. Maintain Books of Accounts and Annual Audit of Financial Records

For UAE Mainland Companies, as per Federal Law No. 2 of 2015 of Commercial Companies Law, every Limited Liability Company shall have one or more auditors to audit the company’s accounts every year. The other types of companies may appoint an auditor by the provisions of this Law. However, the audited accounts are not required to be submitted to the authorities in which they are registered.

For UAE Free Zone companies, audit requirements depend entirely on the jurisdiction of each free zone in which the companies are registered in UAE. Free zone companies may need to get their financial records audited and submitted to their respective free zone authority in the time frame specified by each governing free zone. For instance, in DMCC, it is mandatory for all the DMCC registered companies to get their financial records audited and submitted to DMCC within three (3) months from the completion of the financial year.

With the introduction of Corporate Tax Law effective from June 1, 2023, the following companies or businesses are required to get their accounts audited in addition to the existing requirements in their respective jurisdiction in UAE:

a. All companies or businesses whose annual revenue exceeds AED 50,000,000 (UAE Dirhams Fifty Million only).

b. All freezone companies who are qualified to be a “Qualifying Free Zone Person” (subject to conditions).

Irrespective of whether companies require an audit of their financial statements or not, it is a general requirement for all businesses across all emirates, including free zones, to maintain their records for at least five years.

In the ambit of the introduction of Value Added Tax (VAT) effective on or after January 1, 2018, and Corporate Tax effective on or after June 1, 2023, maintenance of books of accounts are required to be kept for a minimum period of five (5) years and seven (7) years respectively.

5. Economic Substance Regulations

The UAE Economic Substance Regulations (ESR) were instituted in April 2019 and later amended in August 2020. These regulations align with the global standards established by the Organization for Economic Cooperation and Development (“OECD”) Forum on Harmful Tax Practices. According to these standards, entities engaged in geographically mobile business activities must demonstrate substantial activities in a jurisdiction.

Applicability of ESR

ESR applies to financial years starting on or after 1 January 2019. The regulations mandate that onshore companies, free zone companies, and other business entities engaging in any of the following ‘Relevant Activities’ outlined in the regulatory framework must establish and exhibit a sufficient ‘economic presence’ in the UAE.

Relevant Activities

a. Banking business

b. Insurance business

c. Investment fund management business

d. Lease finance business

e. Headquarters business

f. Shipping business

g. Holding company business

h. Intellectual property business

i. Distribution and service centre business

Deadline for submissions to the Ministry of Finance

Every Licensee (including an Exempted Licensee) engaging in a relevant activity is obligated to submit an Economic Substance Notification within six months following the conclusion of the relevant financial period.

For licensees generating income from a relevant activity during the corresponding financial period and not eligible for regulatory exemption, it is mandatory to substantiate economic substance in the UAE. These entities must file an Economic Substance Report within 12 months from the conclusion of the relevant financial period.

Deadline for submissions to the Ministry of Finance

6. Ultimate Beneficial Owner (UBO)

As of July 2021, the UAE instituted the Ultimate Beneficial Owner (UBO) regulations, applicable to registered Legal Persons in the UAE (including Commercial Free Zones). However, companies entirely owned by the Local or Federal Government, or by entities wholly owned by such governments, along with those operating in Financial Free Zones (such as DIFC and ADGM), are excluded from these regulations.

Definition

The Ultimate Beneficial Owner (UBO) or Real Beneficiaries may fall into one of the following categories:

a. A Natural Person who holds direct or indirect ownership shares of 25% or more, thereby ultimately owning or controlling the Legal Person; or

b. A Natural Person with the authority to vote by 25% or more, or the ability to appoint or dismiss the majority of directors, or any other means by which they exert ultimate control over the Legal Person.

c. In scenarios where the UBO cannot be identified through the conditions mentioned above, a Natural Person occupying a higher management position shall be deemed as the Beneficial Owner.

Deadlines for submission to Relevant Authorities

Every registered Legal Person must maintain either a UBO register or a register of Shareholders of the Company, as applicable. Within sixty days from the date of licensing or registration, the Legal Person is obligated to provide the Registrar with the information contained in the Register of Beneficial Owners and Register of Partners or Shareholders.

7. Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organisations (AML-CFT Law)

In alignment with the UAE government’s commitment to combating financial crimes, Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) regulations have been established. These regulations are reinforced by comprehensive guidelines issued by various supervisory authorities, outlining essential principles and best practices crucial for identifying instances of financial crime and mitigating associated risks.

Applicability of AML-CFT Law

The AML Law in UAE applies to financial institutions, banks, insurance companies, Designated Non-Financial Businesses and Professions (DNFBPs), and Virtual Asset Services Providers (VASPs) (including Free Zones and financial Free Zones). 

Who are DNFBPs?

Anyone who is engaged in the following trade or business activities shall be considered a DNFBP:

a. Brokers and Real Estate Agents;

b. Dealers in Precious Metals and Precious Stones;

c. Corporate Service Providers and Trusts;

d. Lawyers, Notaries & Other Legal Professionals and Practitioners;

e. Auditors and Accountants. 

Registration for goAML

These DNFBPs must register with the integrated digital platform “goAML” system through which Suspicious Transaction Reports (STRs) and Suspicious Activity Reports (SARs) are reported to UAE Financial Intelligence Unit (UAEFIU).

8. Automatic Exchange of Information – Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS)

Automatic Exchange of Information (AEOI) involves the automated sharing of information among competent authorities from different jurisdictions, as established by international agreements and incorporated into domestic law to enhance cooperation in the global pursuit of tax transparency.

Under the FATCA and CRS regimes, UAE Reporting Financial Institutions (“UAE RFIs”) are mandated to annually report information on specific financial accounts held by reportable account holders and/or controlling persons to the UAE Ministry of Finance (“UAE MoF”).

Subsequently, the UAE MoF facilitates the exchange of this data with the IRS and peer jurisdictions for FATCA and CRS, respectively. Additionally, the UAE MoF may receive ad hoc requests in accordance with the FATCA and CRS regimes.

FATCA / CRS System

Every UAE Reporting Financial Institution is required to register on the CRS/FATCA system and submit data and risk assessments by the stipulated domestic reporting deadline.

Conclusion

At My Business Consulting, we understand that navigating the complexities of compliance can be overwhelming, especially when your primary focus is on growing your business. That’s why our team of seasoned experts is dedicated to ensuring your business stays on the right side of regulations. We handle the intricacies of compliance, from understanding the latest laws to implementing best practices so you can concentrate on what you do best – driving your business forward. 

Our services are tailored to meet the unique needs of your business, ensuring a personalized approach to compliance. Contact us today to learn how we can help streamline your operations, mitigate risk, and provide peace of mind, allowing you to dedicate your energy to growth and innovation. Let us be your trusted partner in navigating the ever-evolving landscape of business compliance.