What is VAT Clarification Form?

What is VAT Clarification Form?

When one thinks about the Middle East, the UAE and its trade-friendliness for industrialists native to the region and all over the world comes to everyone’s mind instantly. The UAE government has made tremendous efforts to ensure that the ease of doing business is always high here.

As an extension of its efforts to improve the infrastructure of the country, the government introduced VAT in the UAE on 1st January 2018 to aid the government’s efforts for the development sector.

To make the VAT filing and remittance process easier for the businesses, the government also provides them the facility to seek guidance on the VAT provisions’ that may be ambiguous or open to interpretation in certain cases. This is done using a VAT clarification form.

VAT Clarification Form

The UAE’s Federal Tax Authority has taken cognizance of the fact that even though the VAT system has been prevalent for more than two years now, the taxpayer would still have uncertainties regarding the provisions of the law and the interpretation of a circumstance unique to their business.

To enable clarification of such queries, the taxation authority has introduced the process of clarification via the VAT clarification form.

A VAT Clarification form must be considered to be guidance provided by the authorities regarding the query submitted and the circumstance unique to the business alone. It is not a general ruling but a specific resolution provided to the specific issue alone.

Who can submit a VAT Clarification form?

The major prerequisite to submitting a VAT Clarification form is that the person or the company raising the query must be valid taxpayers as per the prevailing laws of the country.

A registered FTA (Federal Tax Authority) agent can also take up the onus of submitting a VAT Clarification form on behalf of the taxpayer.

Points to be noted before Submitting the VAT Clarification Form

Since the document is being submitted for a time-sensitive query to a very occupied Government Authority, it is in the benefit of both the taxpayer and the authorities that certain guidelines are followed to avoid any issues

1. The applicant or the tax agent is liable to check the VAT laws and provisions in detail before submitting the clarification form
2. The taxpayer has a material interest in the matter
3. The query has not been resolved to its entirely in previous clarification attempts

The FTA requires the following to be submitted with the VAT Clarification form for addressing your query :

1. Duly filled VAT Clarification Form (A signed PDF )
2. Proof of authorization and identification is required for non-registered applicants
3. Tax Advice regarding the said matter.
4. A detailed letter, covering the facts of the matter, legal references, the applicant’s view, and the question to which the resolution is being sought from the authority.

All registered applicants must submit the filled and signed VAT clarification form via a soft copy from their registered email address only.

Failure to comply with any of the guidelines or failure to establish the uncertainty in the VAT provisions will be considered grounds for not issuing VAT Clarification by the authorities.

Timelines

By following all the mentioned guidelines and processes, the applicant is eligible to get a response from the FTA within 40 business days.

In case, the clarification form submitted is unclear or incomplete in any manner, the FTA may choose to seek additional information, and the subsequent resolution gets moved to 40 business days from the re-submission date.

Conclusion

VAT Clarification form is a valuable tool for every business, as it is an opportunity for them to present their queries in front of the authorities in a clear manner. Filling the VAT Clarification form correctly as per the guidelines is the key to obtaining a swift resolution in these matters.

For businesses who are not adept at these matters, they can seek the guidance of FTA registered Tax Agents, to make the process easier and productive.

UBO Form – JAFZA

Jebel Ali Free Zone Authority, the regulator of Jebel Ali Free Zone (“Jafza”), would like to request its customers to provide the updated details of UBO Form by no later than 31 March 2021, to avoid paying the applicable late fine. The details can be updated on Dubai Trade Portal via this link (UBO form), or by following the steps below:

1- Log in to Dubai Trade Portal
2- 2- Go to “Service Menu”
3- 3- Choose “Registration”
4- 4- Go to “Ultimate Beneficiary Owner”
The following points should be noted
1- The UBO Form request is applicable to all types of companies and whether the owners/shareholders are natural or legal persons.
2- Pursuant to the Article (15) of the Cabinet Decision No. (58) of 2020 regulating the beneficial owner procedures, please note the following:
• The Registrar shall not disclose to any person the data contained in the Register of Beneficial Owner or the Register of Partners or Shareholders, without a written consent of the Beneficial Owner or the Nominee Board Member.
• The provisions of Clause (1) above shall not apply to:
a. Disclosure obligations set forth in the Decision.
b. Anything provided for by the international laws and conventions in force in the State, particularly the provisions of Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organisations.

Accounting services in Dubai

NON-RECOVERABLE INPUT TAX

As a general rule, the Input Tax recoverable is the total of Input Tax paid for Goods and Services which are used or intended to be used for making any of the following:

• Taxable Supplies
• Supplies that are made outside UAE which would have been Taxable Supplies had they been made in UAE.

However, there are certain exceptions for claiming Input Tax in respect of the following Taxable Supplies (Non-recoverable Input Tax):

1. Provision of entertainment services to anyone not employed by the Person, including customers, potential customers, officials, or shareholder or other owners or investors.

2. Where a motor vehicle was purchased, rented, or leased for use in the Business and is available for personal use by any Person.

3. Where Goods or Services were purchased to be used by employees for no charge to them and for their personal benefit including the provision of entertainment services, except in the following cases:

• where it is a legal obligation to provide those Services or Goods to those employees under any applicable labour law in the State or Designated Zone;

• it is a contractual obligation or documented policy to provide those services or goods to those employees in order that they may perform their role and it can be proven to be normal business practice in the course of employing those people;

• where the provision of goods or services is a deemed supply under the provisions of the Decree-Law.

Notes:
a. The phrase “entertainment services” shall mean hospitality of any kind, including the provision of accommodation, food and drinks which are not provided in a normal course of a meeting, access to shows or events, or trips provided for the purposes of pleasure or entertainment.
b. The phrase “motor vehicle” shall mean a road vehicle which is designed or adapted for the conveyance of no more than 10 people including the driver. A motor vehicle shall exclude a truck, forklift, hoist, or other similar vehicle.

CASE STUDIES

I. HEALTH INSURANCE
The provision of health insurance will be liable to VAT at the standard rate. Where this is provided by an employer to an employee as a benefit which is part of a contract of employment, the employer will be able to recover the input tax on such products, subject to the usual rules of VAT recovery. Where an employer provides health insurance to the family of the employee, input tax will only be recoverable if there is a legal obligation to provide the insurance to the family members.
The reason for this is that Article 53 of the Executive Regulations dealing with blocked input tax envisages that costs incurred for the personal benefit of employees (which health insurance would be), will only be recoverable where:

I. It is a legal obligation to provide those services or goods to those employees under any applicable labour law in the State or Designated Zone.

II. It is a contractual obligation or documented policy to provide those services or goods to those employees in order that they may perform their role and it can be proven to be normal business practice in the course of employing those people.

The important part of the above is under II, where family health insurance is a contractual obligation, then it must also be required in order that the employee may perform their role. It is not the case that an employee requires their family member to have health insurance in order that the employee may perform their role, and on that basis the input tax on health insurance provided to families under II above should not be recoverable.

In contrast, where the law stipulates that the employee’s family members must be provided with health insurance, this would be dealt with under I above and the input tax incurred by the business would be recoverable (for example, Abudhabi government has made it a legal obligation for all the Companies to provide health insurance to dependents as well).

II. MOBILE PHONE BILLS PAID FOR EMPLOYEES
Mobile phone Bills paid which is being used by employees for no charge to them shall be analysed based on the following factors:

a. Is it necessary to provide such free services in order to perform their role?
b. Is this the legal obligation to provide such services?

If the answers to any of the above questions is yes, then the Taxable Person is allowed to claim the Input Tax. Please note that the onus is on the taxable person to substantiate that such services provided to employees is necessary for the performance of their roles & responsibilities.

The UAE Economic Substance Regulations Guidance on Notification

What is the purpose of the Notification?

The purpose of the Notification is to provide the Regulatory Authorities with certain initial information in respect of Licensees and their activities in the UAE for the relevant Reportable Period. The information provided as part of the Notification is a prerequisite to filing an Economic Substance Report for the same period (if required).

Who needs to submit a Notification?

A Notification must be filed if you are a corporate entity (e.g. 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 Financial Year (see
Section C, Question 1):

● Banking Businesses
● Insurance Businesses
● Investment Fund Management Businesses
● Lease-Finance Businesses
● Headquarter Businesses
● Shipping Businesses
● Holding Company Businesses
● Intellectual Property Businesses
● Distribution and Service Centre Businesses

A UAE business that undertakes one or more of the above activities during the relevant Financial Year is referred to as a Licensee.

Please refer to the Relevant Activities Guide in Schedule 1 of Ministerial Decision 100 of 2020 issued by the
Ministry of Finance for further information and an explanation of each of the above Relevant Activities.

What if the business only carried out a Relevant Activity for part of the year, is it still required to file a
Notification?

Yes, the business must report all Relevant Activities undertaken during the Financial Year, irrespective of whether the Relevant Activity was conducted throughout the entire Financial Year.

Can a single Notification be filed for multiple Licensees?

No, each Licensee must file a Notification on a stand-alone basis, irrespective of whether the Licensee is part of a consolidated group for accounting or VAT purposes.

Does a branch file a separate Notification from its head office?

No, the UAE head office / parent company must file a single consolidated Notification that includes details of all its UAE branches that carry out a Relevant Activity, irrespective of whether the head office itself undertakes a
Relevant Activity.

What is the deadline for filing a Notification?

The Notification must be filled within six months from the Licensee’s financial year end.

For example:

Financial Year End Deadline
31 Mar 30 Sept
30 Jun 31 Dec
30 Sept 31 Mar
31 Dec 30 June

How should the Notification be filed?

The Notification must be submitted electronically on the Ministry of Finance portal.

What if the Licensee is in the process of being liquidated?

If the Licensee undertakes a Relevant Activity in the year of liquidation, the entity or its liquidators must ensure that all obligations under the Economic Substance Regulations are satisfied for the period up to liquidation,
including the filing of a Notification and Economic Substance Report (where applicable).

What happens if a Licensee does not submit a Notification, although it is required to do so?

Non-compliance with the obligation to file a Notification before the deadline is subject to a penalty of AED 20,000.

What happens if the information provided in the Notification is incorrect?

Providing incorrect or false information in the Notification is subject to a penalty of AED 50,000. Knowingly
providing incorrect or false information or incorrectly claiming an exemption from the Economic Substance
Regulations can result in the Licensee being deemed to have failed the Economic Substance Test for the relevant
Reportable Period.

Completing the Notification

All fields in the Notification are mandatory unless specifically designated as “optional”.

The Notification will automatically show the next question (and section) based on your responses. Therefore, the
ordering of questions (and sections) may, in some cases, not be sequential.

A. Licensee Details

1. Licensee name

This is the name mentioned on the commercial licence, trade licence or permit of the Licensee.

2. Does the Licensee have a dual license?

Only Licensees that have been issued more than one commercial licence, trade licence or permit by
different licensing authorities should select “yes”.

2.1. Commercial License / Trade License / Permit No.

This is the registration number stated on the commercial licence, trade licence or permit of the Licensee.

2.2. Licensing Authority

This is the authority that has issued the commercial licence, trade licence or permit of the Licensee.

3. Primary / Main Regulatory Authority

Where a Licensee has a dual license or multiple Regulatory Authorities, the Primary Regulatory Authority
is the Regulatory Authority that issued the Licensee’s primary trade/commercial license when it was first
incorporated or registered and in which the premises, employees and expenditures of the Licensee are
located.

4. Place of establishment

This is a confirmation of whether the Licensee has its main / primary place of establishment (being the
place of registration) in a Free Zone (including Financial Free Zone) or in mainland UAE.

5. Registered Office address

This is the address stated on the commercial licence, trade licence or permit of the Licensee.

6. Legal form

This is the legal form of the Licensee as specified in its constitutional documents or as otherwise specified
pursuant to the laws and regulations of the jurisdiction of incorporation / registration.

7. Is the Licensee registered for VAT in the UAE / UAE VAT registration number?

This is the unique 15-digit number obtained after registering for VAT in the UAE. The VAT registration
number can be found on the VAT certificate, VAT return. Where the Licensee is part of a UAE VAT group,
please include the VAT registration number of the representative member for VAT purposes.

B. Branch Details

1. Are you reporting the Relevant Activity of a branch?

Licensees with UAE branches that carry out Relevant Activities must report the Relevant Activities of their
branches in a single, consolidated Notification.

2.1. Commercial License / Trade License / Permit No.

This is the registration number stated on the commercial licence, trade licence or permit of the branch.

2.2. Licensing Authority

This is the authority that issued the commercial licence, trade licence or permit of the branch.

C. Reportable Period

A Licensee’s Reportable Period is the accounting period commencing on or after 1 January 2019 for which
the Notification is filed. The end of the Reportable Period should correspond to the end of the period that
financial statements (if any) are prepared to.

Licensees are required to include the “”start”” and “”end”” date of their Reportable Period as illustrated
below.

A Licensee has a financial year that corresponds to the Gregorian calendar year:
Start date: 1 January 2019
End date: 31 December 2019

A Licensee is incorporated on 1 October 2019 and has a 31 March 2020 financial year end (short period of
account):
Start date: 1 October 2019
End date: 31 March 2020

A Licensee is incorporated on 1 January 2019 and has a 31 March 2020 financial year end (long period of
account):
Start date: 1 January 2019
End date: 31 March 2020

Following the first long period of account, the Licensee’s subsequent Notification would cover the
following Reportable Period:
Start date: 1 April 2020
End date: 31 March 2021

A Licensee incorporated on 1 July 2018 with a 30 June 2019 financial year end would not be required to
submit a Notification for this period, as the Regulations apply to financial years commencing on / or after
1 January 2019. The first reportable period for such Licensee would be:
Start date: 1 July 2019
End date: 30 June 2020

The Reportable Period is always the financial period preceding the financial period in which the
Notification is required to be submitted.

D. Relevant Activities

1. Did the Licensee carry on a Relevant Activity during the Reportable Period?

A ‘substance over form’ approach must be taken to determine whether the Licensee carried on a Relevant
Activity. This means looking beyond what is stated on the commercial licence, trade licence or permit to
the activities actually undertaken during the Reportable Period.

2.A. Please indicate which Relevant Activity(ies) the Licensee carried on during the Reportable Period

Please refer to Relevant Activities Guide in Schedule 1 of Ministerial Decision 100 of 2020 for further
information in respect of each Relevant Activity.

2.B. Did the Licensee earn income form the Relevant Activity during the Reportable Period?

This is the gross income earned from the Relevant Activity as recorded in the books and records for the
Reportable Period prepared under applicable accounting standards, including income earned from
sources outside of the UAE, and without deducting any type of costs or expenditure.

In the context of income from sales or services, gross income means gross revenues from sales or services
without deducting the cost of goods sold or the cost of services.

2.C. Is the income earned from the Relevant Activity?

Income is considered subject to tax when it is taken into account when calculating the taxable income of a
foreign company or other relevant group entity reporting the UAE income for corporate income tax
purposes, irrespective of whether the UAE income can benefit from an exemption or other form of
corporate tax relief in the foreign jurisdiction under domestic tax law or a double tax agreement.

2.D. Regulatory Authority

This is the authority designated under the Economic Substance Regulations as being responsible for
reviewing and verifying the information of the Licensee with respect to a Relevant Activity.

2.E. I confirm that I did not earn any income form a Relevant Activity(ies) during the Reportable Period

Licensees that carried on a Relevant Activity but did not earn income from that activity during the
Reportable Period are not required to file an Economic Substance Report and demonstrate substance in
the UAE for that Reportable Period.

3. If you selected “Intellectual property business” in Question 2A, please confirm if the Licensee is a High
Risk IP Licensee?

Where a Licensee receives income from an Intellectual Property (‘IP’) Asset, it will also have to determine
whether it is a High Risk IP Licensee.

A High Risk IP Licensee is a Licensee that carries on an IP Business, and meets all of the following three
requirements:

1. The Licensee did not create the IP Asset which it holds for the purpose of its business, and
2. The Licensee acquired the IP Asset from either:
a. a group company, or
b. in consideration for funding research and development by another person situated in
foreign jurisdiction, and
3. The Licensee licenses or has sold the IP Asset to one or more group companies, or otherwise
earns separately identifiable income (e.g. royalties, licence fees) from a foreign group company
in respect of the use or exploitation of the IP asset.

Please refer to the Relevant Activities Guide in Schedule 1 of Ministerial Decision 100 of 2020 for further
information in respect of High Risk IP Licensees.

E. Exemptions

1. Please confirm if the Licensee meets the definition of an “Exempted Licensee”

Where a Licensee claims to be an ‘Exempted Licensee’ it must indicate the basis for the exemption under
Question 1A-1E, and provide the necessary documentation to evidence its exempt status.

An Exempted Licensee is not required to submit an Economic Substance Report and demonstrate
Economic Substance in the UAE for Reportable Periods in which it meets the requirements of being an
Exempted Licensee.

1.A. I confirm that the Licensee is (i) wholly owned by UAE national or UAE resident individuals that reside in
the UAE, (ii) is not part of a multinational group, and (iii) only operates in the UAE

Licensees wholly-owned by UAE nationals or UAE resident individuals that are not part of a multinational
group and that carried out business in the UAE only (including activities that are not Relevant Activities)
are required to provide relevant supporting documents to substantiate their exempt status, including:

● Shareholder register
● Structure chart
● Proof of nationality and/or residency of shareholder(s) – e.g. copies of UAE passport / UAE
residency visa
● Copy of financial statements for the relevant period (or management accounts if financial
statements are not available)

A Licensee is part of a multinational group if it has a foreign parent company or a foreign subsidiary or
sister company, or if the Licensee or any other UAE entity that is under common ownership or control is
subject to tax with respect to activities carried out through a branch or permanent establishment in
another jurisdiction.

1.B. I confirm that the Licensee is an Investment Fund as defined in the Regulations

Investment Funds that are not self-managed Investment Funds (as self-managed Investment Funds may
be considered an ‘Investment Fund Management Business’), are required to provide adequate
documentary evidence to substantiate their exempt status, such as:

● Copy of the statutory documents
● Copy of the PPM / Information Memorandum
● Copy of Investment Fund license / registration (for an Investment Fund established in a
jurisdiction outside the UAE)

An ‘Investment Fund’ means an entity whose principal business is the issuing of investment interests to
raise funds or pool investor funds with the aim of enabling a holder of such an investment interest to
benefit from the profits or gains from the entity’s acquisition, holding, management or disposal of
investments and does not include an entity through which an Investment Fund directly or indirectly
invests (refer to question 1C).

1.C. I confirm that the Licensee is a special purpose vehicle or investment holding company of an Investment
Fund as defined in the Regulations

Licensees through which the Investment Fund invests or operates (but not including the entity or entities
in which the Investment Fund ultimately invests) are required to provide relevant supporting documents
to substantiate their exempt status, such as:

● Structure chart of the Investment Fund and its subsidiary investment holding entities / SPVs
● Evidence of the ‘Investment Fund’ status of the Investment Fund that has incorporated the UAE
entities (refer to 1B).

For the avoidance of doubt, the words “through which an investment fund directly or indirectly invests or
operates” refers to any UAE entity whose sole function is to facilitate investments made by the
Investment Fund.

1.D. I confirm that the Licensee is resident for tax purposes in a jurisdiction other than the UAE

Licensees that are tax resident in a jurisdiction other than the UAE and whose income from a Relevant
Activity is subject to corporate income tax in the foreign jurisdiction of tax residence are required to
provide the following supporting information to substantiate their exempt status:

i. Details of the country in which the entity claims to be tax resident;
ii. Tax identification number issued by the country of claimed tax residence; and
iii. Any of the following supporting documents to substantiate the foreign tax residence:

● A letter or certificate from, or issued by, the competent authority for the jurisdiction in question
stating that the entity is considered to be resident for corporate income tax purposes in that
jurisdiction, or

● Copy of an assessment to corporate income tax, a corporate income tax demand, evidence of
payment of corporate income tax, or any other document, issued by the competent authority for
the jurisdiction in question.

1.E. I confirm that the Licensee is a UAE branch of a foreign company and all income of the UAE branch is
subject to tax in the jurisdiction of the foreign company

Licensees that are a UAE branch of a foreign company can be Exempted Licensees if all their income from
a Relevant Activity is subject to corporate income tax in the jurisdiction of the foreign parent / head
office, subject to providing the following supporting information:

i. Details of the country in which the parent company / head office is resident for tax purposes;

ii. Tax identification number of the head office / parent company issued by the relevant foreign tax
authority; and

iii. Any of the following supporting documents:

● Copy of the tax return or associated forms and schedules submitted evidencing that the Relevant
Income of the branch has been reported in the tax return of the foreign head office
● Copy of any assessment to corporate income tax / demand for corporate income tax in the
foreign jurisdiction for the relevant period by the head office (if available)

F. Ownership information

1. Parent Company

The Parent Company of the Licensee is the entity that directly:

a. holds a majority of voting rights in the Licensee; or
b. has the right to appoint or remove a majority of the boards of directors of the Licensee; or
c. controls alone, pursuant to a joint arrangement with other shareholders or members, a majority
of the voting rights in the Licensee; or
d. has the right to exercise, or actually exercises, dominant direct influence or control over the
Licensee.

1.1. Name

This is the name of the Parent Company.

1.2. Tax identification number

This is the identification number issued for corporate income tax purposes by the tax administration in
the jurisdiction in which the Parent Company is tax resident.

1.3. Address

This is the address of the Parent Company.

1.4. Country of tax residence

This is the country in which the Parent Company claims to be tax resident.

2. Ultimate Parent Company

The Ultimate Parent Company of the Licensee is an entity of a group that:

a. owns directly or indirectly a sufficient interest in the Licensee or the Exempted Licensee such
that it is required to prepare consolidated financial statements under applicable accounting
standards or would be so required if its equity interests were traded on a public securities
exchange in its jurisdiction of tax residence; and
b. there is no other entity in the group that owns directly or indirectly a sufficient interest in such
entity such that it is required to prepare consolidated financial statements under applicable
accounting standards, or would be so required if its equity interests were traded on a public
securities exchange in its jurisdiction of tax residence.

2.1. Name

This is the name of the Ultimate Parent Company.

2.2. Tax identification number

This is the identification number issued for corporate income tax purposes by the tax administration in
the jurisdiction in which Ultimate Parent Company is tax resident.

2.3. Address

This is the address of the Ultimate Parent Company.

2.4. Country of tax residence

This is the country in which the Ultimate Parent Company claims to be tax resident.

3. Ultimate Beneficial Owner

The Ultimate Beneficial Owner of the Licensee is an individual who owns directly or indirectly twenty five
percent (25%) or more of the share capital or ownership interests in the Licensee. A Licensee may have
one or more Ultimate Beneficial Owners.

If the Licensee is a UAE branch of a foreign company, then the Ultimate Beneficial Owner is the individual
who owns directly or indirectly twenty five percent (25%) or more of the share capital of the foreign
company.

3.2. UBO type

This indicates the relationship between the Ultimate Beneficial Owner and the Licensee.

3.3. Name

This is the name of the Ultimate Beneficial Owner.

3.4. Tax identification number

This is the identification number issued for corporate or personal income tax purposes by the tax
administration in the jurisdiction in which the Ultimate Beneficial Owner is tax resident.

3.5. Address

This is the address of the Ultimate Beneficial Owner.

3.6. Country of tax residence

This is the country in which the Ultimate Beneficial Owner claims to be tax resident.

G. Declaration

1. Designated contact person

The dedicated contact person can be anyone who has the authority to respond to queries raised by, and
provide further documents and other information to, the Regulatory Authority or the National Assessing
Authority.

Examples of a “”Designated Contact Person”” include:

The Licensee’s General Manager;
The Licensee’s Director; or
The Licensee’s Compliance Officer.

Audit firms in Dubai

The UAE Economic Substance Regulations Guidance on Economic Substance Report

What is the purpose of the Report?

This purpose of the Economic Substance Report is to provide the National Assessing Authority with information on the Licensee and the income, expenditure, assets, employees and governance related to its Relevant Activities in the UAE.
Who needs to submit an Economic substance Report?
An Economic Substance Report must be filed by a corporate entity (e.g. Limited Liability Company, Public Joint Stock Company, Private Joint Stock Company, etc.) or a partnership (Limited Liability Partnership, General Partnership etc.) that is not an Exempted Licensee and that derives Relevant Income from any of the following Relevant Activities during a Reportable Period (see Section C, Question 1):

● Banking Businesses
● Insurance Businesses
● Investment Fund Management Businesses
● Lease-Finance Businesses
● Headquartered Businesses
● Shipping Businesses
● Holding Company Businesses
● Intellectual Property Businesses
● Distribution and Service Centre Businesses

Please refer to the Relevant Activities Guide in Schedule 1 of Ministerial Decision 100 of 2020 issued by the Ministry of Finance for further information and an explanation of each of the above Relevant Activities.

English:

https://www.mof.gov.ae/en/StrategicPartnerships/Pages/ESR.aspx

Arabic:

https://www.mof.gov.ae/ar/strategicpartnerships/pages/esr.aspx

Can a single Economic Substance Report be filed for multiple Licensees?

No, each Licensee must file an Economic Substance Report on a stand-alone basis, irrespective of whether the Licensee is part of a consolidated group for financial reporting or VAT purposes.

What are the reporting requirements for branches?

A UAE corporate entity that operates through one of more branches registered in the UAE must report the Relevant Activities of itself and those of its UAE branches in one composite Economic Substance Report.

A UAE branch of a foreign entity is not required to file an Economic Substance Report if the Relevant Income of the UAE branch is reported and subject to tax in the jurisdiction of the foreign parent / head office.

Where a UAE entity carries on a Relevant Activity through a foreign branch or permanent establishment that is subject to tax in the foreign jurisdiction, the UAE entity should not report (i.e. exclude) in its Economic Substance Report the Relevant Income, assets, expenditure and employees of the foreign branch or permanent establishment.

What is the deadline for filing the Economic Substance Report?

The Economic Substance Report must be filled within 12 months from the Licensee’s financial year end.

How should the Economic Substance Report be filed?

The Economic Substance Report must be submitted electronically on the Ministry of Finance portal.

What if the Licensee is in the process of being liquidated?

If the Licensee undertakes a Relevant Activity in the year of liquidation, the entity or its liquidators must ensure that all obligations under the Economic Substance Regulations are satisfied for the period up to liquidation, including the filing of a Notification and Economic Substance Report (where applicable).

What happens if a Licensee does not submit an Economic Substance Report, although it is required to do so?

Non-compliance with the obligation to file an Economic Substance Report before the deadline is subject to a penalty of AED 50,000, and can result in the Licensee being deemed to have failed the Economic Substance Test for the relevant Financial Year.

What happens if the information provided in the Economic Substance Report is incorrect?

Providing incorrect or false information in the Economic Substance Report is subject to a penalty of AED 50,000. Knowingly providing incorrect or false information or incorrectly claiming an exemption from the Economic Substance Regulations can result in the Licensee being deemed to have failed the Economic Substance Test for the relevant Reportable Period.

Completing the Economic Substance Report

All fields in the Economic Substance Report are mandatory unless specifically designated as “optional”.
The Economic Substance Report will automatically show the next question (and section) based on your responses. Therefore, the ordering of questions (and sections) may, in some cases, not be sequential.

A. Licensee Details
1. Licensee name

This is the name mentioned on the commercial licence, trade licence or permit of the Licensee.

2. Does the Licensee have a dual license?

Only Licensees that have been issued more than one commercial licence, trade licence or permit by different licensing authorities should select “yes”

2.1. Commercial License / Trade License / Permit No.

This is the registration number stated on the commercial licence, trade licence or permit of the Licensee.

2.2. Licensing Authority

This is the authority that has issued the commercial licence, trade licence or permit of the Licensee.

3. Primary / Main Regulatory Authority

Where a Licensee has a dual license or multiple Regulatory Authorities, the Primary Regulatory Authority is the Regulatory Authority that issued the Licensee’s primary trade/commercial license when it was first incorporated or registered and in which the premises, employees and expenditures are located.

4. Place of establishment

This is a confirmation of whether the Licensee has its main / primary place of establishment (being the place of registration) in a Free Zone (including Financial Free Zone) or in mainland UAE.

5. Registered Office address

This is the address stated on the commercial licence, trade licence or permit of the Licensee.

6. Offices / premises (square footage)

This is the size of the dedicated offices or premises owned or leased by the Licensee in the UAE.

7. Legal form

This is the legal status of the Licensee as per its constitutional documents or as otherwise specified pursuant to the laws and regulations of the jurisdiction of incorporation / registration.

8. Is the Licensee registered for VAT in the UAE / UAE VAT registration number?

This is the unique 15-digit number obtained after registering for VAT in the UAE. The VAT registration number can be found on the VAT certificate or VAT return. Where the Licensee is part of a UAE VAT group, please include the VAT registration number of the representative member for VAT purposes.

9. Is the Licensee part of a multinational group?

A Licensee is part of a multinational group if it has a foreign parent company or a foreign subsidiary or sister company, or if the Licensee or any other UAE entity that is under common ownership or control is subject to tax with respect to the activities carried out through a branch or permanent establishment in another jurisdiction.

10. Is the Licensee wholly owned by the UAE government?

Only Licensees that are directly or indirectly one hundred percent (100%) owned by the UAE government (Federal or Emirate) should select “yes”.

B. Branch Details

1. Are you reporting the Relevant Activity of a branch?

Licensees with UAE branches that carry out Relevant Activities must report the Relevant Activities of their branches in this Economic Substance Report.

2.1. Commercial License / Trade License / Permit No.

This is the registration number stated on the commercial licence, trade licence or permit of the branch.

2.2. Licensing Authority

This is the authority that issued the commercial licence, trade licence or permit of the branch.

C. Reportable Period

A Licensee’s Reportable Period is the accounting period commencing on or after 1 January 2019 for which the Economic Substance Report is filed. The end of the Reportable Period should correspond to the end of the period that financial statements (if any) are prepared to.

Licensees are required to include the “”start”” and “”end”” date of their Reportable Period as illustrated below.

A Licensee has a financial year that corresponds to the Gregorian calendar year:
Start date: 1 January 2019
End date: 31 December 2019

A Licensee is incorporated on 1 October 2019 and has a 31 March 2020 financial year end (short period of account):
Start date: 1 October 2019
End date: 31 March 2020

A Licensee is incorporated on 1 January 2019 and has a 31 March 2020 financial year end (long period of account):
Start date: 1 January 2019
End date: 31 March 2020

Following the first long period of account, the Licensee’s subsequent Economic Substance Report would cover the following Reportable Period:
Start date: 1 April 2020
End date: 31 March 2021

A Licensee incorporated on 1 July 2018 with a 30 June 2019 financial year end would not be required to submit an Economic Substance Report for this period, as the Regulations apply to financial years commencing on / or after 1 January 2019. The first reportable period for such Licensee would be:
Start date: 1 July 2019
End date: 30 June 2020

The Reportable Period is always the financial period preceding the financial period in which the Economic Substance Report is required to be submitted.

D. Updated information

1. Is the answer to Questions 1 to 5, 7 and 8 in Section A, Questions 1 and 2 in Section B and Question 1 in Section C different from the Notification filed for the Reportable Period?

Only Licensees that have amended any of the pre-completed information from their Notification should select “yes”.

E. Financial information

1. Are audited financial statements for the Reportable Period available?

Audited financial statements are financial statements that have been audited by an independent external auditor.
This question should be answered with “”yes”” if stand-alone audited financial statements for the Licensees are available, or if the Licensee has been consolidated for financial reporting purposes in the audited financial statements of a parent or group company.

2. Currency used for financial information included in the Economic Substance Report

All financial information must be provided in either UAE Dirham (AED) or United States Dollar (USD). Amounts received or paid in a different currency must be translated into AED or USD using the exchange rate prevailing (generally the spot rate when the amount was received, paid or accrued for).

3. Total revenue of the Licensee for the Reportable Period

Where only consolidated financial statements are available, the stand-alone revenue and other financial data of the Licensee should be provided.

Total revenue is the income received from normal business operations and other business activities, and appears first on a company’s income statement.

4. Accounting profit (loss) of the Licensee for the Reportable Period

This is the accounting profit for the reporting period as per the Licensee’s stand-alone financial statements prepared under applicable accounting standards. Where only consolidated financial statements are available, the stand-alone accounting profit of the Licensee should be provided.

5. Net book value of tangible assets held in the UAE at the end of the Reportable Period

This is the value of the tangible assets as per the Licensee’s stand-alone financial statements net of accumulated depreciation and impairment losses.

F. Relevant Activities information

1. Indicate which Relevant Activity(ies) the Licensee carried on during the Reportable Period

Please refer to Relevant Activities Guide in Schedule 1 of Ministerial Decision 100 of 2020 for further information in respect of each Relevant Activity.

1.1. Regulatory Authority

This is the authority designated under the Economic Substance Regulations as being responsible for reviewing and verifying the information of the Licensee with respect to a Relevant Activity.

2. Confirm if the Licensee is a High Risk Intellectual Property business

Where a Licensee receives income from an Intellectual Property Asset, it will also have to determine whether it is a High Risk IP Licensee.

A High Risk IP Licensee is a Licensee that carries on an IP Business, and meets all of the following three requirements:

1. The Licensee did not create the IP Asset which it holds for the purpose of its business, and
2. The Licensee acquired the IP Asset from either
a. a group company, or
b. in consideration for funding research and development by another person situated in foreign jurisdiction, and
3. The Licensee licenses or has sold the IP Asset to one or more group companies, or otherwise earns separately identifiable income (e.g. royalties, licence fees) from a foreign group company in respect of the use or exploitation of the IP asset.

Please refer to Relevant Activities Guide in Schedule 1 of Ministerial Decision 100 of 2020 for further information.

3. Is the answer to Questions 1 and 2 different from the Notification filed for the Reportable Period?

The Relevant Activity(ies) for the Relevant Period should be those activities reported in the Notification that was filed for the same Reportable Period. In the case of any difference in the reported Relevant Activity(ies), the Licensee should explain the reason for this discrepancy.

4. Has an Outsource Provider been used by the Licensee in relation to its Relevant Activity(ies)?

Please indicate whether the Licensee has entered into any arrangements with an Outsourcing Provider in respect of its Relevant Activities. An Outsourcing Provider can be a third party or an entity (or entities) that are part of the same group of the Licensee or that are otherwise related to the Licensee through common ownership or control.

General questions for all Relevant Activities

1. Relevant Income from the Relevant Activity for the Reportable Period:

Relevant Income from a Relevant Activity means all gross income (revenue) earned from that activity as recorded in the books and records of the Licensee for the Reportable Period prepared under applicable accounting standards, including income that is generated outside of the UAE.

In this context, gross income means all income from whatever source derived, including revenues from the sales of goods, services, royalties, interest, premiums, dividends and any other income earned in respect of the Relevant Activity. For the avoidance of doubt, income does not mean taxable income or accounting income or profit.

2. Operating expenditure incurred in relation to the Relevant Activity for the Reportable Period:

This is the amount of expenditure incurred by the Licensee in order to perform the Relevant Activity as recorded in the books and records of the Licensee for the Reportable Period prepared under applicable accounting standards.

Examples of expenditure typically classified as operating expenditure include: payroll, sales commissions, overhead / administrative expenses, transportation and travel costs, amortisation and depreciation, and rent.

3. Average number of full time equivalent (FTE) employees in the UAE in relation to the Relevant Activity for the Reportable Period

The number of full time employees refers to the number of persons involved in carrying on the Relevant Activity in the UAE, whether employed directly by the Licensee or by a related party or third party service provider, calculated based on a standard working week of 40 hours for the entire Reportable Period.

Any part-time employees or employees that did not work for the entire Reportable Period can be taken into account as a fraction of a “full time” employee, calculated by reference to the standard working week of 40 hours.

● A Licensee with 1 full time employee working a 40 hour work week for the entire Reportable Period will report on its Economic Substance Report as having 1.0 FTE.

● A Licensee with 1 full time employee working a 40 hour work week for 26 weeks of the Reportable Period (assumed to be 52 weeks) will report on its Economic Substance Report as having 0.5 FTE (i.e. 1 x 26 / 52).

● A Licensee with 3 part time employees, each working 20 hours a week for the entire Reportable Period will report on its Economic Substance Report as having 1.5 FTE (i.e. 3 x 20 / 40).

Directors that perform Core Income-Generating Activities (“CIGAs”) in addition to their duties as Directors should also be counted when considering the number of full time equivalent employees, calculated by reference to the standard working week of 40 hours.

4. Core Income-Generating Activity(ies) performed in the UAE in relation to the Relevant Activity for the Reportable Period

The Licensee must select all of the CIGAs that it undertakes in the UAE, and include details of any other CIGAs performed in the UAE that are not specifically mentioned in the list.

Please refer to the Relevant Activity Guide in Schedule 1 of Ministerial Decision 100 of 2020 for further information on each CIGA.

5. Expenditure incurred on Outsourcing Providers in the UAE in relation to the Relevant Activity for the Reportable Period

This is the total expenditure incurred by the Licensee on the outsourcing of any of the CIGAs to an Outsourcing Provider.

6. Accounting profit (loss) attributable to the Relevant Activity for the Reportable Period

This is the Relevant Income earned from a Relevant Activity less all costs associated with that Relevant Activity as recorded in the books and records of the Licensee for the Reportable Period prepared under applicable accounting standards.

Specific questions for Relevant Activities

A. Banking Business

A.1. Total value of UAE deposits held by the Banking Business at balance sheet date:

This is the total value of deposits held at balance sheet date.

A.2. Total value of loans receivables at balance sheet date

This is the carrying value of loans issued (mortgages, car loans, personal loans, credit cards etc.) at balance sheet date.

B. Insurance Business

B.1. Does the Licensee undertake captive insurance activities on behalf of Group companies?

A Licensee provides captive insurance services where it insures the risks of its owners, group companies or affiliates.

C. Investment Fund Management Business

C.1. Total value of assets under management

This is the total market value of equity securities, fixed income securities, cash, and other assets that the Licensee manages on behalf of the Investment Fund(s) at balance sheet date / the end of the Reportable Period.

D.a. Lease – Finance Business (Leasing)

D.a.1. Does the Licensee lease assets to Group companies, third parties, or both?

This is the total market value of equity securities, fixed income securities, cash, and other assets that the Licensee manages on behalf of the Investment Fund(s) at balance sheet date / the end of the Reportable Period.

D.a.2. Number of leases held at the end of the Reportable Period

This is a confirmation of who the Licensee transacts with (i.e., are the Lessees related parties, third parties or both related parties and third parties).

D.a.3. Net book value of assets leased at balance sheet date

This is the number of active finance lease contracts / arrangements held by Licensee at balance sheet date.

D.a.4. Net book value of assets leased at balance sheet date that are physically located in the UAE

This is the net book value (written down value) of the assets leased by the Licensee at balance sheet date (see note D.a.3) that are primarily or predominately physically located in the UAE.

D.a.5. Net book value of assets leased at balance sheet date that are physically located outside the UAE

This is the net book value (written down value) of the assets leased by the Licensee at balance sheet date (see note D.a.3) that are primarily or predominately physically located outside of the UAE.

D.b. Lease – Finance Business (Financing)

D.b.1. Is financing provided to Group companies, third parties or both?

This is a confirmation of who the Licensee transacts with (i.e., are the borrowers related parties, third parties or both related parties and third parties).

D.b.2. Number of loans at the end of the Reportable Period

This is the total number of loans issued at the end of the Reportable Period. Where the Licensee has made multiple loans to the same borrower, these loans can be aggregated and counted as a single loan for ESR purposes.

D.b.3. Value of loans at balance sheet date

This is the carrying value of loans issued to borrowers both in the UAE and outside the UAE at balance sheet date.

D.b.4. Value of loans at balance sheet date that are issued to borrowers located in the UAE

This is the carrying value of loans issued to borrowers in the UAE at balance sheet date.

D.b.5. Value of loans at balance sheet date that are issued to borrowers outside the UAE

This is the carrying value of loans issued to borrowers outside the UAE at balance sheet date.

F. Shipping Business

F.1. Number of ships operated by the Licensee during the Reportable Period

This is the total number of ships that were operated by the Licensee for transporting passengers and / or cargo in international waters during the Reportable Period.

H. Intellectual Property Business

H.1. Type of Intellectual Property Asset(s) held by the Licensee

An Intellectual Property Asset is defined as any intellectual property right in intangible assets, such as copyrights, patents, trademarks, brands, and technical know-how, from which the Licensee earns separately identifiable income in the form of royalties, license fees, franchise fees, capital gains and any other income from the sale or exploitation of the Intellectual Property Asset.

The two common types of Intellectual Property Assets are:

I. Patents and similar assets (that share the same features of a patent, including e.g. copyrighted software, technical know-how and other similar novel, useful and protected assets); and

II. Marketing intangibles (an intangible asset that relates to marketing activities, aids in the commercial exploitation of a product or service, and/or has an important promotional value for the product concerned such as trademarks, brands, customer lists and relationships).

Please refer to Ministerial Decision 100 of 2020 and detailed Notification guidance for further information.

H.2. Amount and type of income from Intellectual Property Asset(s)

This is a confirmation of the amount and type of income earned from the Intellectual Property Asset(s) listed in H1.

h3>H.3. Is (are) the Intellectual Property Asset(s) registered in the UAE or abroad

The Intellectual Property Asset is considered registered in the location where it is registered with the relevant registration office.

H.4. Legal owner of the Intellectual Property Asset(s) held by the Licensee:

The legal owner of the Intellectual Property Asset is the entity that registered the Intellectual Property Asset, or is afforded protection over the Intellectual Property Asset through other legal arrangements.

H.5. Net book value of the Intellectual Property Asset(s) at the end of the Reportable Period

This is the book value of the Intellectual Property Assets as per the Licensee’s stand-alone financial statements, net of any accumulated amortization. Where only consolidated financial statements are available, the stand-alone net book value of the tangible assets of the Licensee should be provided.

H.6. Intellectual Property Asset is licensed / transferred / otherwise made available to Group companies, third parties or both during the Reportable Period:

This is a confirmation of whether the Intellectual Property Asset is licensed, transferred or otherwise made available to related parties, third parties or both related parties and third parties.

High Risk IP Licensee

1. Is the Licensee attaching evidence to rebut the presumption that the High Risk Intellectual Property Business does not meet the economic substance test by demonstrating that the Licensee does and historically has exercised a high degree of control over the development, exploitation, maintenance, protection and enhancement of the IP Asset(s)

A High Risk IP Licensee must demonstrate that the income it earns is as a result of CIGAs undertaken in the UAE. The High Risk IP Licensee shall be deemed to fail to meet the Economic substance Test unless it demonstrates to the satisfaction of the National Assessing Authority that there is and historically has been a high degree of control over the development, exploitation, maintenance, enhancement and protection of its IP Asset(s), exercised by an adequate number of full-time employees with the necessary qualifications who permanently reside and perform these activities in the UAE.

Periodic decisions made in the UAE by non-resident directors or board members, or activities performed by local staff of a Licensee that passively holds IP Asset(s) whose creation and exploitation is a function of decisions made and activities performed outside of the UAE is not sufficient to rebut the presumption that the High Risk IP Licensee fails to meet the Economic Substance Test.

I.a. Distribution and Service Centre Business (distribution)

I.a.1. Cost of goods sold in relation to the Distribution Business

Cost of goods sold means the direct costs of acquiring the goods or products that have been sold, resulting in Relevant Income from a Distribution and Service Centre Business as recorded in the books and records of the Licensee for the Reportable Period prepared under applicable accounting standards.

I.a.2. Industry

This is a confirmation of the main industry sector in respect of which the Licensee undertakes their Distribution and Service Centre Business.

I.a.3. Does the Licensee take legal title to the goods (or component parts or materials for goods) purchased from the Foreign Connected Persons?

A Licensee is considered as taking / having title to the goods if legal ownership of the goods transfers to the Licensee, and the Licensee assumes the risk associated with the inventory (until such time legal title transfers to the customer).

I.a.4. Does the Licensee maintain inventory in the UAE?

Inventory is considered physically maintained in the UAE if the relevant goods are imported from the Foreign Connected Person into the UAE (onshore or in a free zone / bonded warehouse) and stored in the UAE before they are sold.

I.b. Distribution and Service Centre Business (Service)

I.b.1. Type of services provided by the Licensee during the Reportable Period

This is to confirm what type of services the Licensee provides.

I.b.2. Did the Licensee also provide services to third parties during the Reportable Period?

This is to confirm whether the Licensee (also) provides services to third parties.

I.b.3. Total income from services provided to third parties for the Reportable Period

Total income earned from services provided to third parties for the Reportable Period.

G. Ownership information

1. Parent Company

The Parent Company of the Licensee is the entity that directly:

a. holds a majority of voting rights in the Licensee; or
b. has the right to appoint or remove a majority of the boards of directors of the Licensee; or
c. controls alone, pursuant to a joint arrangement with other shareholders or members, a majority of the voting rights in the Licensee; or
d. has the right to exercise, or actually exercises, dominant direct influence or control over the Licensee.

1.1. Name

This is the name of the Parent Company.

1.2. Tax identification number

This is the identification number issued for corporate income tax purposes by the tax administration in the jurisdiction in which the Parent Company is tax resident.

1.3. Address

This is the address of the Parent Company.

1.4. Country of tax residence

This is the country in which the Parent Company claims to be tax resident.

2. Ultimate Parent Company

The Ultimate Parent Company of the Licensee is an entity of a group that:

a. owns directly or indirectly a sufficient interest in the Licensee or the Exempted Licensee such that it is required to prepare consolidated financial statements under applicable accounting standards or would be so required if its equity interests were traded on a public securities exchange in its jurisdiction of tax residence; and

b. there is no other entity in the group that owns directly or indirectly a sufficient interest in such entity such that it is required to prepare consolidated financial statements under applicable accounting standards, or would be so required if its equity interests were traded on a public securities exchange in its jurisdiction of tax residence.

2.1. Name

This is the name of the Ultimate Parent Company.

2.2. Tax identification number

This is the identification number issued for corporate income tax purposes by the tax administration in the jurisdiction in which Ultimate Parent Company is tax resident.

2.3. Address

This is the address of the Ultimate Parent Company.

2.4. Country of tax residence

This is the country in which the Ultimate Parent Company claims to be tax resident.

3. Ultimate Beneficial Owner

The Ultimate Beneficial Owner of the Licensee is an individual who owns directly or indirectly twenty five percent (25%) or more of the share capital or ownership interests in the Licensee. A Licensee may have one or more Ultimate Beneficial Owners.

If the Licensee is a UAE branch of a foreign company, then the Ultimate Beneficial Owner is an individual who owns directly or indirectly twenty five percent (25%) or more of the share capital of the foreign company.

3.2. UBO type

This indicates the relationship between the Ultimate Beneficial Owner and the Licensee.

3.3. Name

This is the name of the Ultimate Beneficial Owner.

3.4. Tax identification number

This is the identification number issued for corporate or personal income tax purposes by the tax administration in the jurisdiction in which the Ultimate Beneficial Owner is tax resident.

3.5. Address

This is the address of the Ultimate Beneficial Owner.

3.6. Country of tax residence

This is the country in which the Ultimate Beneficial Owner claims to be tax resident.

H. Outsourcing information required per Relevant Activity

1. Number of Outsourcing Provider(s) to which one or more of the CIGA have been outsourced
An Outsourcing Provider can be a third party or an entity (or entities) that are part of the same group or that are otherwise related to the Licensee through common ownership or control.

2.1. Name of the Outsourcing Provider

This is the name mentioned on the commercial licence, trade licence or permit of the Outsourcing Provider.

2.2. Address of the Outsourcing Provider

This is the address stated on the commercial licence, trade licence or permit of the Outsourcing Provider.

2.3. UAE VAT Tax Registration Number of the Outsourcing Provider

This is the unique 15-digit number obtained after the VAT registration. The VAT registration number can be found on invoices from the Outsourcing Provider(s).

2.4. Expenditure incurred on the Outsourcing Provider in the UAE for the Reportable Period

This is the total amount paid by the Licensee to the Outsourcing Provider for the relevant services during the Reportable Period.

2.5. Number of full time equivalent (FTE) employees provided by the Outsourcing Provider

Full time (or equivalent) employee means the number of employees working on behalf of the Licensee during the Reportable Period, calculated based on a standard working week of 40 hours for the entire Reportable Period. Any employees that did not work for the entire Reportable Period can be calculated as a fraction of a “full time” employee, by reference to the standard working week of 40 hours.

A Licensee must ensure that the time spent by employees of the Outsourcing Provider on CIGAs of the Licensee are not also counted towards other Licensees (i.e., if an employee of an Outsourcing Provider spends an hour performing CIGAs for a Licensee, the same employee cannot spend the same hour performing CIGAs for a different Licensee).

3.1. Whether the Licensee’s registered address is that of the Outsourcing Provider

Where a Licensee uses premises / a registered office provided by the Outsourcing Provider, the Licensee must confirm that its registered address is that of the relevant Outsourcing Provider.

3.2. The Licensee has adequate supervision of the CIGA carried out by the Outsourcing Provider

A Licensee is required to demonstrate that it has the ability to supervise, in the UAE, the CIGAs being carried out by the Outsourcing Provider.

3.3. The CIGA is carried out by the Outsourcing Provider exclusively in the UAE

The CIGAs carried out by the Outsourcing Provider must be undertaken in the UAE (i.e., the employees and assets of the Outsourcing Provider used must be physically present in the UAE).

I. Directed and managed in the UAE

1. Number of board meetings held during the Reportable Period?

This is the total number of board meetings (or equivalent) that were held by the Licensee in relation to the Relevant Activity(ies) during the Reportable Period.

2. Number of board meetings held in the UAE during the Reportable Period?

This is the total number of board meetings (or equivalent) that were physically held in the UAE by the Licensee in relation to the Relevant Activity(ies) during the Reportable Period.

3. Was a quorum of directors physically present in the UAE for the board meetings held in the UAE?

The meaning of Quorum shall be determined in accordance with the laws and regulations applicable to the Licensee or the Licensee’s constitutional documents (or both). The board members (or equivalent) are not required to be resident in the UAE, but do need to be physically present in the UAE when attending board meetings and making strategic decisions.

4. Were all strategic decisions made during the board meetings held in the UAE?

The strategic decisions taken in relation to the Relevant Activity(ies) must be made by directors (or equivalent) physically present in the UAE.

5. Are the board minutes and company records maintained in the UAE?

The minutes of board meetings (or equivalent) must record all the strategic decisions taken in relation to the Relevant Activity(ies) and must be signed by directors (or equivalent) physically present in the UAE.

6. Does the board of directors have the necessary knowledge and expertise to discharge their duties?

The directors (or equivalent) must have the necessary knowledge and expertise to discharge their duties and should not be merely giving effect to decisions being taken outside the UAE.

J. Declaration

1. Designated contact person

The dedicated contact person can be anyone who has the authority to respond to queries raised by, and provide further documents and other information to, the Regulatory Authority or the National Assessing Authority.

Examples of a “”Designated Contact Person”” include:

The Licensee’s General Manager;
The Licensee’s Director; or
The Licensee’s Compliance Officer.

2. I confirm that the Licensee has adequate: (a) qualified employees, (b) expenditure and (c) physical assets in the UAE in respect of its Relevant Activity(ies) for the Reportable Period

What is an adequate or appropriate level of economic substance will depend on the nature and level of Relevant Activity(ies) carried out by the Licensee. A Licensee will have to ensure that it maintains sufficient records to demonstrate the adequacy and appropriateness of the resources and assets utilised and expenditure incurred in respect of its Relevant Activity(ies).

2.a. I confirm that the Licensee has complied with all its requirements to submit any documents, records, or information required under applicable laws in the UAE

A Licensee will have to confirm that in respect of its Holding Company Business, it has complied with all of the requirements imposed on the Licensee to submit documents, records or other information to the relevant Regulatory Authority under applicable laws and regulations in the UAE.

2.b. I confirm that the Licensee has an adequate number of employees and physical premises in the UAE to undertake its Holding Company Business

What is adequate or appropriate will depend on the nature and level of Relevant Activity being carried out by the Licensee. A Licensee will have to ensure that it maintains sufficient records to demonstrate the adequacy and appropriateness of the resources and assets utilised and expenditure incurred in respect of its Relevant Activity(ies).

For completeness, the employees and premises can be outsourced to a third party or to a related party. As with any outsourcing arrangement. =The Licensee will in this case need to meet the requirements set out in Article 6(2) of the ESR.

3. I confirm that the Licensee is directed and managed in the UAE in respect of its Relevant Activity(ies)

A Licensee will have to confirm whether it was directed and managed in the UAE during the Reportable Period by meeting the conditions set out in paragraph 3 of Article 6 of the Regulations. Please also refer to paragraph (b) of Article 4.2 of the Guidance for further information on the directed and managed test.

5. Additional information (optional field)

Any additional information to support a Licensee’s declaration that they have met the Economic Substance Test for the Relevant Period.

7. I confirm that the information provided in the Economic Substance Report is complete and accurate, and acknowledge that there are sanctions for providing inaccurate information as per Article 15 of the Economic Substance Regulations

Providing incorrect or false information in the Economic Substance Report is subject to a penalty of AED 50,000. Knowingly providing incorrect or false information can result in the Licensee being deemed to have failed the Economic Substance Test for the relevant Financial Year.

What is a VAT Administrative Exception or VAT Exception Form?

A VAT Administrative Exception or VAT Exception Form is a mechanism which provides registrants with concessions / exceptions allowed by the Federal Decree-Law No. 8 of 2017 on Value Added Tax (“Law”) or Cabinet Decision No 52 of 2017 on the Executive Regulations of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (“Executive Regulations”) if difficult circumstances prevent them from following certain procedural aspects of the Law or the Executive Regulations.

VAT Administrative Exceptions are grouped into the following categories and are relevant to VAT only:
-Tax Invoices
-Tax Credit Notes
-Length of the Tax Period
-Stagger
-Evidence to prove export of goods
-Time for the export of goods

Who is eligible to make a VAT Administrative Exception Request?
The applicant must:
1. be a registrant with the FTA;
2. satisfy the requirements in respect of the relevant Exception Request, as outlined below; and
3. provide all relevant supporting documentation
How to make a Request?
The registrant must submit the VAT Administrative Exception Request by email to specialexceptions@tax.gov.ae.

Who can submit the VAT Administrative Exception Form on your behalf?
The following can submit the VAT Administrative Exception:
1. The authorized signatory of the registrant;
2. The registrant’s appointed Tax Agent; or
3. The registrant’s appointed Legal Representative. If you are a member of a Tax Group, the request should be submitted by the Representative Member of the Tax Group.

What information will you need when completing the VAT Administrative Exception Form?
You are required to submit the below information along with the form:
– the category for which you are seeking a VAT Administrative Exception;
– a detailed description of why you are making a VAT Administrative Exception Request as per the criteria outlined above; and
– any documentary proof to support the factual and legal grounds on which the request is based (e.g. sample invoices, contracts, payment slips or other). This is based on the category of the Exception.

What is UAE VAT Reconsideration Form?

Any tax registered business or individual who have received penalties can apply to the Federal Tax Authority (FTA) for VAT reconsideration within 20 working days from the receipt of such penalty.

How to Apply for VAT Reconsideration in the UAE? Where to find the VAT Reconsideration Form? The UAE VAT reconsideration form can be submitted on the FTA website www.tax.gov.ae. There is no need for the tax registered business to login, and this form is available directly on the website. Any person who has received the penalty can submit UAE VAT reconsideration for any decision taken up by the FTA, and such an application must be submitted online in Arabic only.

Whether any objections can be raised to the FTA if penalties are imposed?

Yes, if you are not satisfied with the Federal Tax Authority (FTA)’s decision and if they have imposed any penalties, then you can file a VAT reconsideration request to the authority to review the decision made by the FTA.

How does FTA respond to the VAT Reconsideration filed?

The authority will review its decision and facts of the case and issue a new decision within 20 working days from the receipt of the application. The Authority will inform the applicant of its decision within five business days of issuing the decision.

The authority may or may not waive off the penalties.

What are information is required to file the VAT Reconsideration Form?

1. VAT Registration certificate

2. Emirates ID used for registration

3. Passport copy used for registration

4. Registered mobile number and Memorandum of Association to verify the authorized person.

5. The amount of penalty

6. The date of the penalty

7. Detailed facts and information explaining the reasons for reconsideration

Based on all this information the VAT reconsideration can be filed. There are no fines and penalties when submitting the VAT reconsideration form unlike the Voluntary Disclosure form.

Voluntary Disclosure in Dubai

What is a voluntary disclosure?

A voluntary disclosure should be made by a taxable person to notify the FTA of an error or omission in their tax return, tax assessment, or tax refund application.

When should a voluntary disclosure be made? As per Article 8 of Cabinet Decision No. 36 of 2017 on the Executive Regulation of Federal Law No. (7) of 2017 on Tax Procedures, voluntary disclosures are required to be made in the following cases:

  • Where a filed Tax Return or a Tax Assessment is incorrect resulting in a calculation of the Payable Tax being less than required i.e. an underpayment of tax due, in an amount of more than AED 10,000
  • Where a filed Tax Return or a Tax Assessment is incorrect resulting in a calculation of the Payable Tax being less than required i.e. an underpayment of tax due, by not more than AED 10,000 and there is no Tax Return through which the error can be corrected or
  • Where a filed Tax Refund Application is incorrect, resulting in a calculation of a refund to which the Taxpayer is entitled being more than the correct amount, unless the error was a result of an incorrect Tax Return or Tax Assessment.

The voluntary disclosure must be made within 20 business days of discovering the error or penalties may apply.

What are the steps to submit a voluntary disclosure in respect of a VAT return?

To submit a voluntary disclosure against a VAT return that has already been submitted to the FTA, the taxable person should go to the VAT201 – VAT Returns tab in the VAT section of the e-Services portal and click on the Submit Voluntary Disclosure button in the row of the relevant VAT return for which the voluntary disclosure is to be made.

Accounts & Bookkeeping Outsource in Dubai – A very Smart Move

Significance of Bookkeeping and Accounting for businesses in Dubai

For any business or organisation in UAE, maintaining books of accounts is compulsory. ’Bookkeeping’ is the means of recording your financial transactions like sales, purchases, payments, receipts etc. whereas, ‘Accounting’ is the interpretation, analysis and reporting of these financial data. These financial statements are available on public domain for government assessment documentation as well as to general public for greater trust in the company and to address the appropriate investors as a potential prospect.

For accounting and bookkeeping in Dubai, you can either opt for having an in-house team of Chartered accountants or you may prefer outsourcing professional service from experts to cater to your accounting and bookkeeping requirements.

How outsourcing of accounts and bookkeeping is better than in-house service?

When you have an in-house accounts team for bookkeeping in Dubai, it requires recruiting your own team of Chartered Accountants, that will involve their training along with other expenses like software cost, review etc.

In case you go for an outsourcing resource of these services, you are able to eliminate the hassles of the mentioned expenses along with the associated risks. Moreover, with outsourcing services, you are getting access to skilled, professional and trusted experts with an astounding combination of global standards and knowledge of local provisions. 

Why Accounting and Bookkeeping with Earningo Advisory Services? 

When it comes to Accounting and bookkeeping, all you have to do is reach out to
Earningo Advisory Services as your Audit firm in Dubai for bookkeeping, accounting, tax audits, consultations, and more. As management consultants, we are offering more than just maintaining your books of accounts. The services are extended to a plethora of features:

  • Comprehensive approach to local requirements
  • Availability of both on site and off-site accounting services
  • Exceptional understanding of UAE legislation and laws
  • Accuracy, credibility & high ethical standards
  • Constantly adapting team of experts on updates in the global standards
  • Best global practices

Another compelling feature that highlights our endeavour is our customised approach to various business models across sectors and industries. We offer a wide scale of services ranging from Amazon Seller Central Accounting, Airbnb Accounting, Audit, compliance, and more.

Partnered with the finest software for accounting i.e. both cloud based and tailor made, you are getting access to an assured set of resources that helps your business in manifolds.

Why Earningo Advisory Services is one of the best Audit firms in Dubai?

Accounting & bookkeeping is of utmost importance in keeping a day to day and financial record of accounts. However, it is always advisable that planning your taxes in advance in time can turn out to be favorable. With a deeper understanding of local requirements, Earningo Advisory Services believes in adding value to your business and extending the highest standard of services when it comes to bookkeeping services in Dubai.

If you are based out of UAE and looking for outsourcing services for bookkeeping and accounting professionals, you may like to prefer Earningo Advisory Services for exceptional accounts and audit solutions.

Economic substance regulations – Distribution Business

What is “Distribution Business”

If the Licensee purchases goods from a FOREIGN CONNECTED PERSON and import those goods into the UAE and distribute those goods outside UAE. The trigger point is Foreign Connected Person.

Foreign Connected Person is a natural or judicial person not a resident of UAE, who is related to one or more natural or judicial person(s) through direct or indirect ownership or control, or common control.

Distribution Business shall comprise of following but not limited to Core-income Generating Activities:

  1. Transporting and storing component parts, materials, or goods ready for sale
  2. Managing inventories i.e. storing goods in the warehouses based in UAE
  3. Taking orders
  4. Inventory controls and checks including physical verification and stock audits.

There could be Three cases under Distribution Business:

  1. Purchases from China, import in UAE through customs and then store in the warehouse and then finally export to Africa.
  2. Purchases from China, no imports i.e. goods are not touched to the territorial waters of UAE, rather it shipped directly from China port to Africa Port i.e High Seas Sales.
  3. Purchases from China, import in UAE through customs, store in the warehouse and then finally sell in the UAE Market itself.

In all the above cases, purchases are made from “Foreign Connected Person”

 

Analysis of Cases

Case I: As per Cabinet of Ministers Resolution No. 31 of 2019 Concerning Economic Substance Regulations (ESR), Economic Substance Regulations shall be applicable.

Case II: As per Cabinet of Ministers Resolution No. 31 of 2019 Concerning Economic Substance Regulations (ESR) AND as per FAQ given by Hamriyah Free Zone Authority, the licensees activities should not be considered as a distribution business under ESR as the goods being traded were never imported into UAE. In such a case, the licensee is not required to comply with ESR tests. Although, the licensee is required to submit the notification for ESR.

However, as per the guide published by Ministry of Finance, ESR shall be applicable which states that A Licensee is considered engaged in a “Distribution Business” if the Licensee purchases raw materials or finished products from a Foreign Connected Person, and distributes those raw materials or finished goods. (The words “imports the goods into the UAE” and “distribute those goods outside the UAE” has been mislaid in the guide).

Case III: As per Cabinet of Ministers Resolution No. 31 of 2019 Concerning Economic Substance Regulations (ESR) AND as per FAQ given by Hamriyah Free Zone Authority, the licensees activities should not be considered as a distribution business under ESR as the goods were not exported. In such a case, the licensee is not required to comply with ESR tests. Although, the licensee is required to submit the notification for ESR.

However, as per the guide published by Ministry of Finance, ESR shall be applicable which states that A Licensee is considered engaged in a “Distribution Business” if the Licensee purchases raw materials or finished products from a Foreign Connected Person, and distributes those raw materials or finished goods. (The words “imports the goods into the UAE” and “distribute those goods outside the UAE” has been mislaid in the guide).

Public clarification in the form of notification should come from other Relevant Authorities as well to solve further ambiguities with respect to “Distribution Business”.

Companies that earn income from a relevant Activity “Distribution Business” during the financial period must submit the return with the Relevant Authority within 12 months from the end of the relevant financial period. For reporting purposes, Companies in UAE must start preparing standalone financial statements for the income generated from relevant activities. Statement of Comprehensive Income and Balance Sheet should be prepared with respect to Distribution Business Relevant Activity. The biggest challenge is to track the inventory purchased from Foreign Connected Person and compute the profits related to the relevant activity only i.e Relevant Income generated. It requires proper recording of operating expenditure, sales, purchases, and all other financial transactions for the relevant activity conducted during the reportable period.