Whether you\u2019re setting up as an onshore or free zone\nbusiness, a multinational company or a one-man band: if your company plans to\ncarry out one of numerous \u2018relevant activities\u2019 here in the UAE, it must meet\nnew economic substance rules.<\/p>\n\n\n\n
In short, certain types of companies must:<\/p>\n\n\n\n
Maintain adequate assets and demonstrate adequate operating\nexpenditure here<\/p>\n\n\n\n
As a new business owner, these rules can appear confusing.\nSo here\u2019s what you need to know before you incorporate.<\/p>\n\n\n\n
Compliance \u2013 who does it affect?<\/strong><\/p>\n\n\n\n The new regulations came into effect on 30 April this year\nand will start investigating company from their first year of operation. They\napply to companies that operate in the below industries:<\/p>\n\n\n\n Companies active in these sectors are considered \u2018relevant\nentities\u2019 and must comply with economic substance regulations.<\/p>\n\n\n\n However, allowances will be less stringent for those\nmanaging holding companies (such as those that only derive equity-based\ninterest income) and additional requirements apply to anything related to\nhigh-risk intellectual property.<\/p>\n\n\n\n Failure to comply with the economic substance regulations\ncan result in fines of up to AED 300,000, so it\u2019s important you know the rules.<\/p>\n\n\n\n While these new rules may appear to be additional red tape,\nthe main aim is to prevent non-domiciled directors, who register and operate\ncompanies here in the UAE, from tax evasion in their home nations.<\/p>\n\n\n\n They\u2019re also part of efforts by the UAE government to avoid\nbeing blacklisted by the EU as \u2018non-cooperative\u2019 and to ensure the nation fully\nmeets OECD taxation requirements and retains its excellent reputation for ease\nof doing business.<\/p>\n\n\n\n Manage your business from within the UAE<\/strong><\/p>\n\n\n\n When incorporating in the UAE, one of the first things\nyou\u2019ll need to do as a business owner is to apply for a trade license \u2013 either\nfrom the free zone you want to set up in, or from the mainland\u2019s Department of\nEconomic Development (if you wish to conduct business with UAE-based\ncompanies).<\/p>\n\n\n\n However, under the new economic substance rules, regardless\nof which type of business you run and which area it\u2019s based in, your managing\ndirector or one of your company\u2019s senior management team must be based in the\nUAE. This means they need to operate from here on a full-time basis \u2013 for the\nspecific activity that the business is licensed to trade in.<\/p>\n\n\n\n This is true no matter the size of your business. If you\nhave a board, this means that meetings need to take place in the UAE. You\u2019ll\nalso need to be able to demonstrate these have been held on a regular basis \u2013\ncomplete with \u2018minutes\u2019 to evidence this requirement. However, they are yet to\nspecify the template for these \u2018minutes\u2019.<\/p>\n\n\n\n Employ full-time staff in the UAE<\/strong><\/p>\n\n\n\n Aside from being based here yourself \u2013 which is a given if\nyou\u2019re a sole trader incorporating in the UAE \u2013 if your business falls into the\n\u2018relevant entity\u2019 category you\u2019ll need to consider how you\u2019re going to staff\nyour new business.<\/p>\n\n\n\n While economic substance rules stipulate the need for\n\u2018qualified\u2019 employees, the term itself is open to interpretation in terms of\nthe level of experience actually needed. Nor is a minimum number of full-time\nemployees specified.<\/p>\n\n\n\n However, what is made clear is that employees need to be\nphysically present\u2013 regardless of the type of contract they have with your\nbusiness. There is a way round this by outsourcing some of your work, but you\nmust be able to prove the reasons behind this and provide a basis of whether\nthe outsourced third party has adequate resources for carrying out the relevant\nactivity.<\/p>\n\n\n\n Ensure your main income is generated within the UAE<\/strong><\/p>\n\n\n\n One of the main attractions of starting a business within in\nthe UAE is its international atmosphere and its proximity to Europe, Asia, and\nthe wider MENA region.<\/p>\n\n\n\n While not all of your clients need to be based locally (in\nfact they can\u2019t be if you run a free zone business) the economic substance\nrules suggest that the actual work should be conducted from within the UAE.\nThat is to say, your client can be based overseas but your main place of work \u2013\nand the location where it\u2019s carried out \u2013 should be here.<\/p>\n\n\n\n For example, in the case of shipping companies it means\nactivities such as hiring, paying and overseeing crew members and overhauling\nships should be conducted by a \u2018licensee in the state\u2019 \u2013 in other words,\nsomeone holding the correct government-issued trade license.<\/p>\n\n\n\n Own assets and spend on local business services<\/strong><\/p>\n\n\n\n The UAE\u2019s income and corporate tax-free environment attracts\nall kinds of businesses and services.<\/p>\n\n\n\n As a result, entrepreneurs setting up here have hundreds of\npotential suppliers and third party providers to work with \u2013 right on their\ndoorstep.<\/p>\n\n\n\n The economic substance rules are mindful of this and make it\na requirement that relevant entities incur an adequate amount of operating\nexpenditure in the UAE. However, it\u2019s unclear exactly what \u2018adequate\u2019 means (in\nterms of a percentage or specific monetary value).<\/p>\n\n\n\n Similarly, there\u2019s no real clarity around \u2018asset ownership\u2019.\nWhile it can be presumed that this means that a relevant company will need to\ndeclare its assets as part of the rules, there will almost certainly be further\nclarification from the UAE government in due course.<\/p>\n\n\n\n While no means unique in its efforts to offer greater\nfinancial transparency, the UAE is one of \nnumerous tax-free or low tax countries that have put similar laws into\npractice this year \u2013 including the Bahamas, Cayman Islands, British Virgin Islands,\nMauritius, Seychelles, Jersey, Guernsey, the Isle of Man, and Bermuda.<\/p>\n\n\n\n As the UAE looks towards its future as an international\nincorporation destination, it aims to maintain its high regard as one of the\neasiest countries in the world to do business in.<\/p>\n\n\n\n To find out more about the economic substance rules and how\nthey might impact your business or license requirements, contact BIZ today and\nthe team can explain what you need to do as a new business owner to meet these\nregulations.<\/p>\n","protected":false},"excerpt":{"rendered":" Whether you\u2019re setting up as an onshore or free zone business, a multinational company or a one-man band: if your company plans to carry out one of numerous \u2018relevant activities\u2019 here in the UAE, it must meet new economic substance rules. In short, certain types of companies must: Understand who this effects Be managed or directed from within the UAE Have adequate UAE-based full-time staff Generate most of its income here Maintain adequate assets and demonstrate adequate operating expenditure here As a new business owner, these rules can appear confusing. So here\u2019s what you need to know before you incorporate. […]<\/p>\n