AURIFER
UAE introduces Country by Country reporting

UAE introduces Country by Country reporting

20190703 by Thomas Vanhee
By way of a Cabinet Resolution, the UAE has introduced Country by Country reporting (“CbC reporting”). Almost simultaneously with the introduction of economic substance regulations, the UAE further implements international tax standards and joins around 80 other countries which have implemented the CbC reporting. The impact of this reporting on international corporations in the UAE cannot be understated.

UAE introduces Country by Country reporting

UAE introduces Country by Country reporting
20190703 by Thomas Vanhee

By way of a Cabinet Resolution, the UAE has introduced Country by Country reporting (“CbC reporting”). Almost simultaneously with the introduction of economic substance regulations, the UAE further implements international tax standards and joins around 80 other countries which have implemented the CbC reporting. The impact of this reporting on international corporations in the UAE cannot be understated.

Background

In the Framework of the Base Erosion and Profit Shifting (“BEPS”) project of the OECD and the G20, countries agreed, amongst others, to implement BEPS action 13 in order to tackle the shortcomings of the international tax system. 

This action prescribes that countries implement legislation requiring multinational enterprises (MNEs) to report annually and for each tax jurisdiction in which they do business certain relevant tax related information and exchange this information with other countries.

UAE implementation

The UAE’s legislation very much mirrors the standards imposed by the OECD which have been adopted in countries which have already implemented CbC reporting. It is applicable to groups which have subsidiaries in at least two tax jurisdictions. The threshold for the consolidated revenues is AED 3.15 billion.

Ultimate Parent Entities in the UAE will therefore have the obligation to file a CbC report to the Ministry of Finance (“MoF”). Certain entities in the UAE may become Alternate Parent Entities as a result of the legislation.

The Federal Tax Authority is not involved in the process, even though according to its Establishment Law it is also competent.

There is currently no requirement to prepare master files and local files. There is additionally no requirement to file a Controlled Transactions Disclosure Form or similar, which KSA has implemented.

Information to be shared by 31 December 2019

The CbC report needs to include the amount of revenues, profits (losses) before income tax, income tax paid, income tax payable, declared capital, accrued profits, number of employees, and non-cash or cash-equivalent assets for each country. In absence of any UAE Generally Accepted Accounting Principles, it will be interesting to see what accounting methods will be used to share the information.

In addition to the above information, the tax residency of the subsidiaries needs to be disclosed, the nature of its activity or main business activities.

The UAE will be using the Model Form prescribed by the OECD. The filing deadlines will be determined later this year.

Sharing of the information

The collected information will be shared by the UAE Ministry of Finance with other countries with which it has information sharing agreements. These could be bilateral treaties or the Convention on Mutual Assistance in Tax Matters. The bilateral treaties concluded by the UAE generally include a provision allowing the exchange of information.

Internationally the intention is to move towards an automatic exchange of the CbC reports. The first automatic exchanges have taken place in June 2018.

Penalties for non compliance

If businesses fail to file to comply with their obligations under the CbC reporting, they run a penalty exposure of up to AED 2,250,000.

Conclusion

The UAE is the third GCC country to implement CbCr reporting after Qatar and KSA had done so previously. The context of the UAE is slightly different, given the current absence of Federal Corporate Income Tax. Both Qatar and KSA have a form of corporate income tax.

How useful the CbC reporting is for MoF currently in absence of any Federal Corporate Tax remains to be seen. However, the introduction of the reporting will allow the UAE to be removed from domestic, European and other blacklists.

The Federal Tax Authority may be interested in the file for VAT purposes and ask tax payers to reconcile the amounts in the CbC report, as it can do today already with audited financial statements.

The importance of the introduction of CbC reporting cannot be understated. The UAE’s important neighbour, Saudi Arabia, will be very keen to examine the information in the CbC reports filed by UAE companies to verify whether it is receiving the right end of the tax portion.

Just how spectacular are the new UAE Economic Substance Regulations for the UAE?

Just how spectacular are the new UAE Economic Substance Regulations for the UAE?

20190701 by Thomas Vanhee, Nils Vanhassel and Qurat Ul Ain
On 30 April 2019, the United Arab Emirates ("UAE") issued Cabinet Decision No. 31 concerning economic substance requirements ("Economic Substance Regulations"). UAE onshore and free zone entities that carry on specific activities mentioned in the regulations will need to examine whether they meet the economic substance requirements. Failing to meet those will trigger penalties. But why is this at first glance inane looking piece of legislation so important for the UAE?

Just how spectacular are the new UAE Economic Substance Regulations for the UAE?

Just how spectacular are the new UAE Economic Substance Regulations for the UAE?
20190701 by Thomas Vanhee, Nils Vanhassel and Qurat Ul Ain

At a glance

On 30 April 2019, the United Arab Emirates ("UAE") issued Cabinet Decision No. 31 concerning economic substance requirements ("Economic Substance Regulations"). UAE onshore and free zone entities that carry on specific activities mentioned in the regulations will need to examine whether they meet the economic substance requirements. Failing to meet those will trigger penalties. But why is this at first glance inane looking piece of legislation so important for the UAE?

Background

The introduction of a legal framework regulating the economic substance criterion in the UAE is a direct consequence of the Organisation for Economic Co-operation and Development's ("OECD") ongoing efforts to combat harmful tax practices under Action 5 of the Base Erosion and Profit Shifting ("BEPS") project. 

It also follows the increased focus by the European Union (EU) Code of Conduct Group ("COCG") on companies established in jurisdictions with a low or no income tax regime, resulting in the publication of the first EU list of non-cooperative jurisdictions, which currently includes the UAE (“EU Blacklist”). In response to the EU COCG initiatives, the governments of the Bahamas, Bermuda, British Virgin Islands (BVI), Cayman Islands, Guernsey, Isle of Man, Jersey, Mauritius and Seychelles introduced economic substance rules with effect from 1 January 2019.

There has also been growing interest and scrutiny from the public opinion as to whether entities established in such jurisdictions should be required to have sufficient economic substance before being able to benefit from beneficial tax regimes. 

The purpose of the Economic Substance Regulations is to curb international tax planning of certain business activities, which are typically characterised by the fact that they do not require extensive fixed infrastructure in terms of human and technical capital, in a way which allows profits to be shifted to no or nominal tax jurisdictions, as opposed to taxing profits where the company has actually created economic value. 

One of the reasons why the UAE has attracted so many businesses is because there is currently no income tax regime at a federal level. The economic substance legislation is specifically targeted at businesses that do not have genuine commercial operations and management in the UAE.

The main reason why the UAE has decided to introduce economic substance legislation lies in the country's aim to further align its legislative framework with international tax practice and the standards set out in the OECD BEPS action plan.

What is economic substance?

Economic substance is a concept introduced to ensure that companies operating in a low or no corporate tax jurisdiction have a substantial purpose other than tax reduction and have an economic outcome that is aligned with value creation. In other words, economic substance requirements are used to analyze whether a company’s presence has a purpose besides the mere reduction of a tax liability. 

Which entities are in scope?

The Economic Substance Regulations apply to UAE onshore and free zone entities that carry out one or more of the following activities:

  • Banking
  • Insurance
  • Fund management
  • Lease-finance
  • Headquarters
  • Shipping
  • Holding company
  • Intellectual property (IP)
  • Distribution and service centre

Entities that are directly or indirectly owned by the UAE government fall outside the scope of the Economic Substance Regulations.

Economic Substance Test

Entities are required to meet the Economic Substance Test when they conduct any of the above activities.

For each Activity, the regulations have defined the so-called Core Income Generating Activities (“CIGA”). This is a list of activities that must be conducted in order to meet the Economic Substance Test. For example, for intellectual property the CIGA would consist of research and development.

In general, the Economic Substance requirements will be met:

  • If CIGA are conducted in the UAE;
  • If the activities are directed and managed in the UAE;
  • If there is an adequate level of qualified full-time employees in the UAE, 
  • If there is an adequate amount of operating expenditure in the UAE,
  • If there are adequate physical assets in the UAE.

In case the CIGA are carried out by another entity, these need to be controlled and monitored.

In accordance with EU recommendations, the regulations provide for less stringent requirements for Holding Company Businesses (“Holding Companies”).

Outsourcing

The CIGA may be outsourced, if there is adequate supervision and the outsourced activity is conducted in the UAE. Economic substance requirements will not be met if multiple Licensees outsource the same activity to the same service provider. There is no possibility for double counting the same service provider.

Reporting and compliance 

Licensees will need to prepare and submit an annual report to their Regulatory Authority (Free Zone Authority or DED), within a period of twelve months after the end of each financial year. The Regulatory Authority will then submit the report to the Ministry of Finance (“Competent Authority”).

Since the Economic Substance Regulations came into effect per 30 April 2019, for existing entities, the first report will have to be submitted in 2020. 

Administrative penalties and sanctions

- Failure to meet the economic substance test

AED 10,000 to AED 50,000 (First Financial Period)

AED 50,000 to AED 300,000 (Consecutive Financial Periods)

- Failure to provide information

AED 10,000 to AED 50,000

In case of continuous non-compliance, Regulatory Authorities may suspend, revoke or deny renewal of an entity’s license.

Exchange of information

If a Licensee fails to meet the Economic Substance Test for a financial year, the Regulatory Authority will inform the Minister of Finance for the financial year in question. 

The Minister of Finance will then inform the foreign competent authority where the parent company, ultimate parent company or ultimate beneficial owner is established of the non compliance. This may lead in these countries to denying treaty benefits. This requires that the UAE has entered into a Treaty or similar arrangement with that country.

Takeaway - much ado about?

UAE entities involved in banking, insurance, fund management, investment holding, financing and leasing, distribution and service center, headquarter companies and intellectual property (IP) activities should asses whether their current presence and activity level meets the newly introduced Economic Substance requirements. 

Where required, they make the necessary adjustments to ensure that their business is compliant with the UAE regulations which entered into force on 30 April 2019, in order to avoid  administrative penalties, and potentially deregistration.

Moving away from the dusty provisions of the law, what consequences does the Economic Substance law now really trigger?

Operational companies should be little worried. They will not be impacted. The very small companies should be slightly worried. The businesses that were attracted by 50 year tax holidays and other promises and failed to develop any substantial activity in the UAE should be more worried.

How much the UAE will be effectively policing this legislation remains to be seen. Merely taking the example of Switzerland, that country had signed up to multiple exchange of information obligations but dragged its feet for the longest time. 

For now though, the UAE has an argument towards the EU and, more importantly, individual countries, to get the UAE off their blacklists. This is important, since some UAE headquarters are currently being denied double tax treaty benefits in a number of countries, because of its failure to comply with international norms.

The legislation may potentially become obsolete though, if the UAE introduces Corporate Income Tax at a rate considered high enough to no longer be considered as a low tax jurisdiction.


Read our previous article on the introduction of Economic Substance Requirements in the UAE here

Ramadan generosity can be costly for VAT

Ramadan generosity can be costly for VAT

20190604 by Nils Vanhassel, Melissa D'Souza and Thomas Vanhee
The Holy Month of Ramadan is the ninth month of the Islamic calendar, observed by Muslims worldwide as a month of fasting, prayer, self-reflection and enhanced community spirit. The annual observance of Ramadan is one of the five pillars of Islam. Ramadan is regarded as a time of piety, charity and blessings. Charities and foundations are noticeably more active during the Holy Month, providing assistance to those in need. Meals are provided at mosques, malls and other public places in a spirit of generosity. Businesses see the Holy Month of Ramadan as an opportunity to organize sales and offer promotions, deals, discounts, gifts and benefits of all kinds. For example, companies may offer "buy one, get one free” or "two for the price of one” promotions or combined offers, where certain products are offered for free or at a reduced priced when bought together with another product (e.g. receiving one year of car insurance free of charge when buying a new car). Traditionally, businesses also celebrate the Holy month by hosting Iftar parties, hand out Iftar snack boxes or give gifts in cash or in kind during Eid al Fitr, the religious feast which marks the end of Ramadan. This article discuss how to deal with UAE VAT in the spirit of generosity.

Ramadan generosity can be costly for VAT

Ramadan generosity can be costly for VAT
20190604 by Nils Vanhassel, Melissa D'Souza and Thomas Vanhee

The Holy Month of Ramadan is the ninth month of the Islamic calendar, observed by Muslims worldwide as a month of fasting, prayer, self-reflection and enhanced community spirit. The annual observance of Ramadan is one of the five pillars of Islam. 

Ramadan is regarded as a time of piety, charity and blessings. Charities and foundations are noticeably more active during the Holy Month, providing assistance to those in need. Meals are provided at mosques, malls and other public places in a spirit of generosity.

Businesses see the Holy Month of Ramadan as an opportunity to organize sales and offer promotions, deals, discounts, gifts and benefits of all kinds. For example, companies may offer "buy one, get one free” or "two for the price of one” promotions or combined offers, where certain products are offered for free or at a reduced priced when bought together with another product (e.g. receiving one year of car insurance free of charge when buying a new car). 

Traditionally, businesses also celebrate the Holy month by hosting Iftar parties, hand out Iftar snack boxes or give gifts in cash or in kind during Eid al Fitr, the religious feast which marks the end of Ramadan.

This article discuss how to deal with UAE VAT in the spirit of generosity.

There is no such thing as a free lunch?

VAT does not like free items. It taxes so-called deemed supplies, where businesses give things away for free for which it previously deducted input VAT. However, not all free supplies are deemed supplies. Even though both look similar, i.e. a third party seemingly receives something without paying for it, only deemed supplies carry VAT consequences.

As part of its sales strategy, a business may provide a customer with a free item. A supermarket could offer a ‘buy one get one’ formula, for example for shampoo bottles. Although it is providing the second bottle for free, the customer has actually paid a lower price for two bottles. Therefore, this situation is rather a so-called joint offer, and not a deemed supply. 

The same reasoning holds for promotional discounts, where a business is slashing its prices with 50% during Ramadan. A business is not offering half of the product for free, but rather a discount on the price.

Perhaps a business considers giving a different item in addition to the item bought. Upon purchase of an electrical toothbrush, the seller offers 2 free tubes of toothpaste. Although the item is given for free, it is still not a deemed supply. The free item is given with the objective of increasing sales of the main item and is ancillary to it.

It is a very different situation when a grocery store decides to donate food supplies to a shelter or to allow all employees to pick an item from its stock for Ramadan. Those constitute deemed supplies and VAT needs to be charged on them. This means that VAT on these deemed supplies constitutes a cost for the business since it is giving the items for free. 

If employers upon purchase however already know that they are purchasing items which are not intended for taxable supplies, they cannot recover the input VAT (and the subject of the deemed supplies is not even on the table).

The business making the deemed supplies needs to issue a tax invoice for the deemed supply and ideally deliver it to the recipient. The VAT on the tax invoice is not deductible in the hands of the recipient.

In the UAE, the taxable value of deemed supplies is its cost. This constitutes the taxable basis on which VAT should be accounted for.

However, even though a supply may constitute a deemed supply, two thresholds apply. If a business stays below the thresholds, it can continue to recover the input VAT and does not have to account for VAT on the deemed supply.

There are two thresholds:

  • The output tax chargeable on all deemed supplies should not exceed AED 2,000 in a 12 month period (i.e. AED 40,000 of costs VAT exclusive), and;
  • The value per person does not exceed AED 500 in a 12 month period (i.e. AED 10,000 of costs VAT exclusive) and it concerns samples or commercial gifts. 

These thresholds allow businesses to occasionally provide small benefits or gifts to their employees and third parties without incurring VAT liabilities.

Given the fact that these thresholds are very low, a business will easily exceed the threshold. Taking into account the substantial administrative burden of having to monitor the thresholds and put a process in place, a business could chose to ignore the thresholds and always account for output VAT. That is also what most informed businesses seem to do.

Entertainment and personal expenses made during Ramadan 

VAT is only recoverable when it is paid for goods and services bought for making taxable supplies. However, even though a business may exclusively make taxable supplies, there may still be expenses which are non-recoverable.

When an employer buys items and gives them to its employees for no charge and for their personal benefit, the employer cannot recover the input VAT. For example, if the employer decides to purchase chocolate dates for Ramadan to give to its employees, the input VAT paid is irrecoverable.

The same holds for so-called 'entertainment expenses’. Entertainment services are “hospitality of any kind”. This includes hotel stays, food and drinks, tickets for shows and events and trips for entertainment. 

Therefore, if a business organizes an iftar for its employees and for third parties, the input VAT is not deductible. Even though the event is held with the objective of improving social cohesion and increase sales, and therefore it has a clear business purpose, it is considered an entertainment expense.

In a public clarification published by the Federal Tax Authority, it did confirm however that VAT on certain entertainment costs is recoverable when used for a genuine business purpose, or when incidental to a business purpose. For example, VAT on food and drinks provided during a business meeting, is recoverable, if:

  • The hospitality is provided at the same venue as the meeting;
  • When the meeting is interrupted, it is only by a short break for the provision of the hospitality and then resumes as normal e.g. a lunch break;
  • The cost per head of providing the hospitality does not exceed any internal policy the business has established; 
  • The food and beverage provided is not accompanied by any form of entertainment e.g. a motivational speaker, a live band etc.

On the other hand, where the hospitality provided becomes an end in itself and is the purpose for attending an event, it will be considered as entertainment costs and VAT is not recoverable.

In other words, if the staff comes for the party or for the Ted talk, the business will not be able to recover the input VAT. If the gathering is serious business, the input VAT will be recoverable.

Complex charities

Despite the fact that charities will mostly carry out transactions which are out of scope of VAT,  given they do not charge any consideration, they may still occasionally render taxable supplies and therefore incur certain VAT obligations, such as the obligation to register for VAT purposes. 

Charities will mostly receive their income from subsidies or donations. Such income is outside of the scope of VAT. Occasionally, it may provide sponsoring opportunities to business, which are subject to VAT.

Under normal VAT recovery rules, input tax is only recoverable where it relates to taxable supplies. In most cases, charities will therefore be required to allocate and apportion VAT recovery between taxable activities (recoverable) and non-taxable activities or exempt activities (non-recoverable). The input VAT recovery may therefore prove to be quite complex.

A special refund scheme applies to so-called Designated Charities, which meet the criteria set by the Federal Tax Authority.

Conclusion

The Holy Month of Ramadan triggers VAT consequences for businesses. Businesses making sales promotions are required to examine the VAT consequences of these sales promotions. Business also may need to not recover input VAT on certain purchases or charge VAT on a deemed supply when providing employees with entertainment or gifts. Charities also do not have an easy task ahead in calculating their VAT liabilities.

Given the very strict penalty framework, it is important to be aware of the VAT consequences of these activities in order to avoid VAT claims or penalties. 


UAE economic substance requirements to be implemented

UAE economic substance requirements to be implemented

20190508 by Thomas Vanhee, Nils Vanhassel and Qurat Ul Ain
With the impending publication of the drafting of an economic substance law in the UAE, it is important to anticipate the consequences of the introduction of such a law on the UAE and offshore structures in the UAE. The UAE currently has no such substance requirements but has been strongly encouraged by the European Union to implement them. The impact on offshore structures will be substantial.

UAE economic substance requirements to be implemented

UAE economic substance requirements to be implemented
20190508 by Thomas Vanhee, Nils Vanhassel and Qurat Ul Ain

With the impending publication of the drafting of an economic substance law in the UAE, it is important to anticipate the consequences of the introduction of such a law on the UAE and offshore structures in the UAE. The UAE currently has no such substance requirements but has been strongly encouraged by the European Union to implement them. The impact on offshore structures will be substantial.

Current lack of substance requirements

The UAE is a federation of seven emirates. There is currently no direct tax legislation on a federal level in the UAE. However, some Emirates (e.g. Abu Dhabi, Dubai, Sharjah,...) have introduced income tax regimes for oil and gas companies and foreign banks. These decrees only apply to companies which are established in one of the aforementioned Emirates. The Income Tax Decrees do not contain any substance criteria.

Partly as a result of the current lack of substance requirements in the UAE, it has become increasingly important for international companies established or operating in the UAE to prove that the entity or structure has not been set up solely for tax purposes. 

Tax residency certificate

Corporations established in the UAE can apply for a ‘tax residency certificate’ ('TRC') with the Ministry of Finance of the UAE. A tax residence certificate (‘TRC’) is a certificate issued by the UAE government to eligible government entities, companies and individuals to benefit from Double Tax Treaties signed by the UAE.

The following documents are generally required in order to apply for the tax residency certificate:

  • Valid Trade License.
  • Certified Articles or Memorandum of association.
  • Copy of identity card for the Company Owners or partners or directors.
  • Copy of passport for the Company Owners or partners or directors.
  • Copy of Residence Visa for the Company Owners, partners or directors.
  • Certified Audited Report.
  • Certified Bank Statement for at least 6 months during the required year.
  • Certified Tenancy Contract or Title Deed.

Please note that although the requirements do not expressly mention that the certificate can only be granted to local companies, the Ministry of Finance does not issue tax residence certificates to offshore companies (not to be confused with free zone companies). 

Although the TRC may be helpful to obtain benefits under double tax treaties, in itself it cannot be considered as proof of economic substance in the UAE.

Developments on substance requirements in the UAE

Background

On 1 December 1997, the EU adopted a resolution on a code of conduct for business taxation with the objective to curb harmful tax competition. Shortly thereafter, the Code of Conduct Group on Business Taxation (COCG) was set up to assess tax measures and regimes that may fall within the scope of the code of conduct for business taxation.

On 5 December 2017, the COCG published the (first) EU list of non-cooperative jurisdictions for tax purposes, in cooperation with the Economic and Financial Affairs Council (ECOFIN).

The EU applies three listing criteria, which are aligned with international standards and reflect the good governance standards that Member States comply with themselves:

  1. Transparency: Jurisdictions should comply with the international standards on exchange of information, automatic (1.1) and on request (1.2). In addition, jurisdictions should sign the OECD's multilateral convention or signed bilateral agreements with all EU Member States to facilitate such exchange (1.3).
  2. Fair Tax Competition: Jurisdictions should not have harmful tax regimes (2.1) nor facilitate offshore structures which attract profits without real economic activity (2.2).
  3. BEPS Implementation: Jurisdictions should commit to implement the OECD's Base Erosion and Profit Shifting (BEPS) minimum standards, starting with Country-by-Country Reporting.

The UAE was initially placed on the EU Black list. However, following commitments to take appropriate measures against the above criteria, the EU transferred the UAE to the EU Grey list. 

However, due to non-compliance with criterion 2.2, the UAE was subsequently put back on the Black list at the start of this year. Criterion 2.2 requires that a jurisdiction should not facilitate offshore structures or arrangements aimed at attracting profits which do not reflect real economic activity in the jurisdiction. 

Therefore, in order to fulfill its commitments to the EU, it is reasonable to expect that the substance requirements are likely to be introduced in the UAE in the foreseeable future. 

In accordance with the scoping paper on criterion 2.2 published by the COCG on 22 June 2018 and the associated work of the OECD's Forum on Harmful Tax Practices (FHTP), the below describes how businesses may be impacted and what substance requirements could potentially be introduced in the UAE in the future.

Expected substance Law requirements

The scoping paper suggest to implement the substantial activities requirement in three key steps: 

(1) identify the relevant activities in their jurisdiction; 

(2) impose substance requirements; 

(3) ensure there are enforcement provisions in place. 

According to the Scoping Paper, the economic substance test would be met if:

a) Taking into account the features of each specific industry or sector, the concerned jurisdiction introduces requirements concerning an adequate level of (qualified) employees, adequate level of annual expenditure to be incurred, physical offices and premises, investments or relevant types of activities to be undertaken.

b) The concerned jurisdiction ensures that the activities are actually directed and managed in the jurisdiction. Any UAE substance requirements are likely to further specify when this condition would be met e.g., depending on frequency of board of director meetings, directors physically present, minutes recording strategic decisions and the knowledge and expertise of the directors.

c) The core income generating activities are performed in the jurisdiction. These substance requirements should mirror the requirements used in the FHTP in the context of specified preferential regimes. As per the scoping paper, the core income generating activities for banking could be: raising funds; managing risk including credit, currency and interest risk; taking hedging positions; providing loans, credit or other financial services to customers; managing regulatory capital; and preparing regulatory reports and returns.

Comparison with the other low tax jurisdictions which introduced the substance requirements

Following the EU blacklist of non-cooperative jurisdictions, many other low and nil tax jurisdictions have introduced economic substance requirements. Jurisdictions where substance compliance is required from 2019 include Bermuda, the British Virgin Islands (BVI), the Cayman Islands, Guernsey, and Jersey.

The Economic substance Law of BVI and Cayman Island are inspired by the core requirements in the scoping paper of the COCG and the FHTP requirements. The UAE is expected to follow the same path.

Conclusion

Currently, there are no substance requirements in the UAE. Corporations established in the UAE may apply for a ‘tax residency certificate’ with the Ministry of Finance of the UAE, when they qualify. Obtaining such a 'TRC' does not necessarily entail that a company has economic substance in the UAE.

Considering the efforts made by the UAE with respect to compliance with the fair tax competition criteria of EU, we anticipate that the UAE will issue economic substance requirements in the very foreseeable future, similar to the ones published recently by other low tax jurisdictions. 

The specific substance requirements in the UAE will likely depend on the type of activities conducted by the relevant business (e.g., banking, shipping and headquarter services would each require different substance requirements).

Businesses in the UAE should already assess their operations against the substance requirements in the light of the COCG and FHTP guidelines.