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On 12 September 2019, the UAE Ministry of Finance released a guidance document (the “Guidance”) regarding the Economic Substance Regulations (“ESR”) introduced earlier this year — Click here to see our previous article on the subject.
While the Guidance does not confirm who the Regulatory Authorities are, nor does it set a minimum standard for what is “adequate” or “appropriate” substance; it clarifies certain key aspects of the scope and application of the regulations, notably that:
- ESR apply to Licensees with financial years commencing on or after 1 January 2019
- The earliest notification filing date is 1 January 2020
- Only Licensees that do generate an income from a Relevant Activity over the assessed period are subject to ESR.
- Holdings do benefit from reduced economic substance requirements, but only if they own strictly equity interests.
- A minimum of one board meeting (or equivalent for branches) is required to be held annually in the UAE.
- All economic substance requirements — including CIGAs — can be outsourced to both third party and related companies.
Additional guidance is expected to be issued in due course.
All UAE entities will need to assess — qualitatively and quantitatively — whether and which of their activities fall within the scope of ESR, and how to ensure they meet economic substance requirements in respect to each Relevant Activity.