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Economic Substance Reporting (ESR) – United Arab Emirates

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Post last modified:November 28, 2024
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As part of the UAE’s commitment as a member of the OECD Inclusive Framework, UAE Government issued Cabinet of Ministers Resolution No. (57) of 2020 on 10 August 2020 and updated Guidance was issued on 19 August 2020 (Ministerial Decision No. (100) of 2020. The Regulations require UAE onshore and free zone companies and certain other business forms that carry out any of the defined “Relevant Activities” listed below to maintain and demonstrate an adequate “economic presence” in the UAE relative to the activities they undertake (“Economic Substance Test”). The Regulations apply to financial years commencing on or from 1 January 2019. Entities that are within the scope of the Regulations are required to submit an annual Notification form to their Regulatory Authority, complete and submit to the same Regulatory Authority an Economic Substance Report within 12 months from the end of their financial year (e.g. 31 December 2020 for entities with a financial year ending 31 December 2019). An entity is not required to meet the Economic Substance Test and file an Economic Substance Report for any financial period in which it has not earned income from a Relevant Activity or if it meets the conditions for being exempt. A Notification form will need to be submitted regardless. Failure to comply with the Regulations can result in penalties, spontaneous exchange of information with the Foreign Competent Authority (as defined in Article 1 of the Regulations), as well as other administrative sanctions such as the suspension, revocation or non-renewal of the entity’s trade license or permit. UAE businesses are expected to use a ‘substance over form’ approach to determine whether or not they undertake a Relevant Activity and, as a result, are within the scope of the ESR Regulations. This determination would require the UAE business to look beyond what is stated on their commercial licence to the activities actually undertaken during a financial period. A Notification must be filed if you are a corporate entity (Limited Liability Company, Public Joint Stock Company, Private Joint Stock Company, etc.) or a partnership (Limited Liability Partnership, General Partnership etc.) that undertakes any of the following Relevant Activities in the UAE during the relevant accounting period: 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 Please contact us for further information and submission of notification or report.

Small Business Relief – Under UAE CT Laws

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Post last modified:November 19, 2024
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Small Business Relief – Under UAE CT Laws Small Business Relief is provided to small Businesses resident for Corporate Tax purposes in the UAE to ease their implementation of the Corporate Tax regime. Small Business Relief reduces the compliance obligations faced by small Businesses in the early stages of the Corporate Tax regime, primarily by alleviating the burden of having to calculate and pay Corporate Tax. Small Business Relief – Who is eligible under UAE CT Laws A Taxable Person (being a Resident Taxable Person - either a Natural Person or a Juridical Person) with Revenue below or equal to AED 3,000,000 in a relevant Tax Period and all previous Tax Periods that end on or before 31 December 2026 can elect to be treated as having no Taxable Income in that period, and will not be obliged to calculate its Taxable Income or complete a full Tax Return. Small Business Relief – Main benefit of relief under UAE CT Laws Eligible Taxable Persons that have elected for the Small Business Relief will benefit from both: administrative relief: they will not be required to calculate their Taxable Income and will benefit from simplified tax return filing and record keeping requirements, including the ability to prepare their Financial Statements using the cash basis of accounting; and tax relief: they are not required to pay any Corporate Tax on income earned in the Tax Period. Eligible Taxable Persons can elect for Small Business Relief in their Tax Return. Once the election has been made, they will be able to complete a simplified Tax Return and benefit from the relief. Briefly, Business is: required to register for Corporate Tax required to file a simplified Tax Return not required to file a full Tax Return not required to calculate Taxable Income not liable to pay Corporate Tax to pay. Other important aspects of Small Business Relief: Business will be, subject to meeting necessary conditions: cannot accrue and utilise Tax Losses for the relevant Tax Period Cannot accrue and utilise Excess Interest Expenditure for the relevant Tax Period Can carry forward Tax Losses and Excess Interest Expenditure from previous Tax Periods Cannot apply reliefs for transfers within a Qualifying Group or for Business restructuring transactions Are not required to comply with transfer pricing documentation requirements Must comply with the Arm's Length Principle Small Business Relief – Who is not eligible for Small Business Relief? Small Business Relief will be available to UAE Resident Persons whose Revenue does not exceed AED 3,000,000 for the relevant Tax Period and all previous Tax Periods. However, there are two key exceptions to this criterion: Where the business is a member of a Multinational Enterprise Group (MNE); Where the business is a Qualifying Free Zone Person. Members of an MNE Small Business Relief will not be available to a business that is a constituent company of an MNE. MNEs are groups of companies that operate in more than one country and that have a total consolidated group revenue of more than…