UAE Economic Substance Regulations (ECR):

The UAE introduced Economic Substance Regulations (“the Regulations”) that became effective as of 1 January 2019. There are potentially two broad filing requirements under the Regulations: 

(i) Notification form and 

(ii) Annual substance return. 

Under the Economic Substance Regulations (ECR), all filing requirements fall under the remit of the relevant Regulatory Authority, and as such it is the Regulatory Authorities that set the requirements, deadlines and format for notification filing as they believe is appropriate and which may vary. Below, we have summarised the most up to date filing requirements as released by some of the Regulatory Authorities.

What Are the Relevant Activities for UAE Economic Substance Reporting?

UAE Economic Substance Regulations (ECR) apply to the businesses that carry out the following relevant activities.

• Banking Business
• Insurance Business
• Investment Fund management Business
• Lease – Finance Business
• Headquarters Business
• Shipping Business
• Holding Company Business
• Intellectual property Business (“IP”)
• Distribution and Service Centre Business

The Regulations are administered by the Regulatory Authorities listed in Article 4 of the Regulations, and set out below:

The approach of the different authorities in relation to which entities should be filing the initial notification is currently inconsistent, and therefore it is important to monitor announcements/ clarifications that are made by the relevant Regulatory Authorities.

We expect the authorities to clarify this and other points as and when they release notification forms.

Immediate actions

To avoid non-compliance with these rules and potential penalties, as a first and immediate step all UAE entities (both companies and branches) should assess whether they fall under the UAE Economic Substance rules (in 2019) and which of the below compliance obligations they may have (if any):

• Notification filing
• Having sufficient substance in the UAE and how to demonstrate this
• Filing of an annual substance return
• If the entity does fall under these rules and has to demonstrate sufficient substance in the UAE, it should also make an assessment as to whether it can satisfy the economic substance tests prescribed by the regulations.

Are you ready?

• Does your UAE entity (company or a branch) fall under these Economic Substance Regulations (ECR) rules?
• What compliance obligation does it have in respect to the financial year?
• Can your UAE entity satisfy the economic substance (ECR) test?
• If you haven’t yet considered the impact of the UAE Economic Substance Regulations on your company/ branch in the UAE and require any of the below:
• Assessment on whether you fall within the rules
• Assessment on whether you can satisfy the Economic Substance test
• Notification filing assistance

Penalties for Non-Compliance

What are the penalties for non-compliance?

Failure to submit a Notification: AED 20k

Failure to submit an Economic Substance Report:

• Penalty of AED 50k; and
• Deemed failure to demonstrate economic substance in the UAE

Failure to provide accurate or complete information:

• Penalty of AED 50k; and
• Deemed failure to demonstrate economic substance in the UAE

Failure to demonstrate sufficient economic substance in the UAE for the relevant Financial Year:

First failure

• Penalty of AED 50k; and
• Information exchange with foreign competent authority of:
  • parent company,
  • ultimate parent company, and
  • ultimate beneficial owner

Second consecutive instance of failure

• Information exchange with foreign competent authority of:
  • parent company,
  • ultimate parent company, and
  • ultimate beneficial owner; and
• Penalty of AED 400k; and
• Trade / commercial licence could be; suspended, withdrawn or not renewed

Why Choose us?

• One stop solution
• Professional expert approach
• Highly Experienced Team
• Well Established & leading advisory firm
• We make things simple