UAE: Economic Substance Regulations - Update on FTA activity

In detail

The UAE economic substance requirements apply to all UAE onshore and free zone companies and certain other business forms that undertake one or more “Relevant Activity” for financial years commencing on or after 1 January 2019.

UAE entities will need to assess whether and which of their activities fall within the scope of the economic substance regulations, and how to ensure they meet the economic substance requirements in respect of each Relevant Activity. This is both a qualitative and quantitative assessment that would involve consideration of operational, financial, tax / transfer pricing, legal and governance matters.

We are now beginning to see audit/assessment and clarification activity from the FTA. Whilst there is no guarantee that the FTA will conduct an audit/assessment of all UAE entities, based on the documents, information requests and deadlines imposed by the FTA, we recommend UAE businesses are prepared with respect to likely requested information in anticipation of receiving an audit, clarification or where the Regulatory Authority requires further information.

A number of examples of the type of information the FTA has requested includes, but is not limited to:

• A detailed and comprehensive explanation to clarify the nature of their Relevant Activity;

• Working papers for the calculation of their Relevant Income;

• Board meeting minutes, resolutions and agenda for board meetings;

• Evidence that non-resident directors that formed the quorum were present in the UAE for board meetings;

• CVs of their full-time employees; and

• Timesheets/biometric logs of their full-time employees.

It should be noted that the above requirements are not an exhaustive list and there have been and may be further requirements based on the FTA requests. 

The FTA is therefore requesting a substantial amount of information from UAE businesses to verify the details provided in the ESR annual report filed, whilst setting an challenging deadline of five (5) days.