UAE Economic Substance notification updates

Annual notification filing – developments

As per the Economic Substance Regulations (ESR), all Licensees are required to notify the Regulatory Authority (typically the license issuing authority) annually on the following aspects: 

• Whether or not the Licensee is carrying on a Relevant Activity 
• If the Licensee is carrying on a Relevant Activity, whether or not all or any part of the Licensee’s gross income in relation to the Relevant Activity is subject to tax in a jurisdiction outside the United Arab Emirates (UAE) 
• The date of the end of the Licensee’s Financial Year (Accounting Reference Period)

Notifications should be made at the time specified by the Regulatory Authority and in the form and the manner approved by the Regulatory Authority.

Detailed below are the latest economic substance notification deadlines. Some of these deadlines have been amended (DIFC & ADGM) and others recently announced. 

• Abu Dhabi Global Market (ADGM) – The 31 March 2020 notification deadline previously advised is no longer applicable. A new deadline date has not yet been announced. Guidance on the filing process is available. 
• Dubai Airport Freezone Authority (DAFZA) – The notification deadline for licensees registered at DAFZA will be 3 May 2020. Guidance on the filing process is available. 
• Dubai International Financial Centre (DIFC) – The 31 March 2020 notification deadline previously advised is no longer applicable. A new deadline date has not yet been announced, however DIFC state that the notification must be filed during Quarter 2 2020 (before 30 June 2020). Guidance on the filing process is available.
• Dubai Multi Commodities Centre (DMCC) – The notification deadline for all licensees registered at DMCC is 30 June 2020. Guidance on the filing process is expected during April, 2020. 
• Dubai Silicon Oasis Authority (DSO) – The notification deadline for entities licensed in DSO was 31 March 2020. Guidance on the filing process is available.
• Ras Al Khaimah International Corporate Centre (RAKICC) – The notification deadline for licensees registered at RAKICC will be 30 June 2020. Guidance on the filing process is available.

Furthermore and according to a recent report in the Khaleej Times, Younis Haji Al Khouri, undersecretary at the Ministry of Finance, said: "The cut-off date of the notification to the Ministry of Finance is 30 June 2020 and that's what was communicated to all regulators. To assure the compliance, some regulators decided to cut it short."

Noting the above comments and in the absence of information on the notification timeline and process by the remaining Regulatory Authorities, it would be prudent for businesses licensed there to work towards filing a notification by 30 June 2020 at the latest.

Penalties for failing to notify the Regulatory Authority are between AED10,000 and AED50,000. Other penalties apply where Licensees fail to provide accurate or complete information and demonstrate sufficient economic substance in the UAE.

COVID-19 impact on Economic Substance

In light of travel restrictions and social distancing measures imposed as a result of the crisis, international groups with entities in the UAE are at risk of breaching the directed and managed substance requirement if board meetings are held or decisions taken without careful planning.

Where board meetings need to be held during the crisis period when overseas based directors cannot travel and attend in person, the resulting risks of non-compliance need to be carefully managed.

In the absence of a relaxation of the board meeting requirements during this period by the relevant authorities, entities should take steps to document the position for the applicable periods of time affected.

On a wider note, international groups with a legal presence in other no or only nominal tax jurisdictions (e.g. Cayman Islands, British Virgin Islands, Jersey etc.), which have introduced similar substance rules, should consider the impact travel restrictions may have on their ability to comply with the requirements in these jurisdictions.

Deloitte comment

Businesses in the UAE should now be finalising their assessments on whether or not the they are carrying on a Relevant Activity for the purposes of the ESR (one of the key bits of information to be detailed in the notification).