Compliance for UAE Economic Substance Laws

The International Tax Cooperation (Economic Substance Law) 2018 (the “ESL”) introduces certain reporting and economic substance requirements for “relevant entities” conducting “relevant activities”.

RELEVANT ENTITIES

The ESL only applies to “Relevant Entities”. The first step is determining whether an entity falls within the classification of a “relevant entity” before assessing whether it is conducting one or more of the nine “relevant activities” as defined under the ESL. Certain entities are expressly out of scope, including investment funds and entities without separate legal personality (e.g, exempted limited partnerships and trusts). AGC can assist you with the initial determination of “relevant entity” and “relevant activities”.

RELEVANT ACTIVITIES

Entities that are Relevant Entities will need to determine if their activities are “Relevant Activities”. The ESL applies economic substance requirements to nine defined lists of activities (“Relevant Activities”). These activities are defined under the ESL and the required UAE Core Income Generating Activities (or “CIGA”). Certain elements of CIGA can be performed by EA.

Relevant Activities Subject to UAE Economic Substance Laws

Banking business
Distribution and service center business
Headquarter business
Holding company business
Insurance business
Intellectual property business
Shipping business
Fund management business
Financing and leasing business

See full definitions of what constitutes a “Relevant Activity” under UAE ES Law.

UAE Economic Substance Test

If a Relevant Entity is carrying on a Relevant Activity (for example – Fund Management Business), it will be subject to the Economic Substance test prescribed in the ESL. The Economic Substance test can be satisfied in relation to that Fund Management Business if the Relevant Entity:

• Conducts CIGA;
• Is directed and managed in an appropriate manner in the UAE; and
• Has adequate operating expenditure, physical presence and personnel in the UAE.

Assessing Economic Substance in the UAE

The assessment of economic substance in the UAE will include a careful consideration of what elements of CIGA the entity is carrying on in the UAE and the level of income derived from the relevant activity performed in UAE. It is the level of income derived from the relevant activity that will ultimately determine the nature, scope and extent of “adequate” operating expenditure, physical presence and employees in UAE.

AGC Governance ESL Solutions

AGC offers a comprehensive range of ESL services that allow Relevant Entities carrying on one or more Relevant Activities to comply with ESL. If you think you have an entity that may be impacted by ESL, AGC will perform an initial evaluation of the entity and the scope of its operations to determine what the entity may need to do to comply with the ESL and how AGC can help. There is no ‘one size fits all’ solution for economic substance requirements, and AGC can provide the full range of (1) consultation (2) implementation and (3) operational services tailored specifically to your entity to fully meet economic substance requirements.

AGC offers:

• A comprehensive suite of fund governance services, including Professional Independent Directors;
• Representatives and corporate services;
• Notification and reporting;
• Certain banking trading and custody services;
• Accounting services;
• Administration and reception services;
• Physical office space and equipment;
• Full or part-time employees with the specific experience to assist with certain elements of CIGA, including detailed time sheets and payroll records.