The reports and filings are, with exception, required to first be lodged by relevant UAE entities during the course of December 2020 on a designated Ministry of Finance portal, which will “go live” some time in the first week of December. This lodgement requirement continues the UAE’s meeting of the global standards set by the OECD forum on Harmful Tax Practices, which requires entities undertaking geographically mobile business activities to have substantial activities in a jurisdiction.
It will be important for UAE entities to carefully consider the ongoing nature of their commercial activities being undertaken in the UAE and whether these operations meet the “relevant activity” definitions under the various economic substance regulations that have been released in the last 12 months. It will also be relevant to consider what gross income is earned by these entities from such “relevant activities” during any relevant financial period. One of the key requirements to demonstrate economic substance is that a UAE based entity needs to undertake the core-income generating activities in relation to its Relevant Activity in the UAE. That is, those core-income generating activities must be of central importance to the UAE entity’s operation for the generation of its gross income earned in the UAE from the Relevant Activity.
The various economic substance regulations of the UAE helpfully provide a significant number of examples as to what constitutes a core-income generating activity with respect to a Relevant Activity defined in the regulations. Therefore, UAE entities should carefully consider the activities that generate its gross income it earns each financial year and ensure that those core-income generating activities are being performed in the UAE where necessary. Where a core-income generating activity requires for strategic and oversight decision-making to occur, significantly the majority of persons making the decisions must be present in the UAE when the decision is made, such that the decision-making requirements and the connection to the UAE are sufficiently addressed.
Separately, Ministerial Decision no 100 of 2020 On the Issuance of Directives for the Implementation of the Provisions of Cabinet Decision No 57 of 2020 Concerning Economic Substance Requirements, also usefully provide a detailed guidance around what constitutes a “Relevant Activity”. While only of an example nature, and not mandatory, UAE businesses can compare their own business operations to those set out in the guidance for a comparative analysis to ensure these new compliance measures are appropriately considered and reported.
