In 2020, new rules regarding the requirements for a company’s activities came into force in the country in accordance with Resolution of the Cabinet of Ministers No. 31. Real economic presence (Economic Substance Regulation) has a number of new restrictions and criteria which are aimed at strengthening control over the turnover of finance to increase the effectiveness of combating tax evasion.
Companies which belong to the institutions listed below and are registered in the UAE, regardless of the activity/activities, are now required to file reports or send notifications according to the Economic Substance Regulations (ESR) of the Ministry of Finance (MOF):
- Insurance organizations
- Management of investment funds
- Leasing activities
- Headquarters activities
- Shipping business
- Holdings
- Intellectual property business (IP)
- Business of distribution and service centers
All of the company sectors listed above should prove their business cases in the UAE, such as conducting their main activities in the UAE with income within the country, have a physical presence which include offices, employees and more.
A company that is on the list under the ESR requirements must pass a special test for compliance with all the requirements for economic presence in the UAE every year and submit reports to the appropriate authority. The reporting and testing period is calculated for 12 months following the previous annual financial period of the enterprise.
If the company did not receive any income for the previous financial year, it is not necessary to file a report, but the appropriate regulatory authority should be notified.