Economic Substance Regulations

The following criteria is set to meet the Economic Substance Test in relation to any Relevant Activity carried on by an entity:

• CIGA are carried on in the UAE.
• Relevant Activity (RA) is directed and managed in the UAE.
• Considering the nature and size of RA, it should be observed that there is an adequate:
1. Number of qualified full-time employees in relation to that RA who are physically present in the UAE, irrespective of whether employed by that entity or term of contracts.
2. Operating expenditure incurred by an entity in the UAE.
3. Physical assets in the UAE.

An entity may outsource a CIGA to an outsourcing provider, provided the following conditions are met:

• That entity must be able to monitor, control and demonstrate adequate supervision in the UAE of the CIGA being carried out by the outsourcing provider.
• CIGA being carried out by the outsourcing provider is conducted in the UAE.
• Employees, expenditures and physical assets of the outsourcing provider are adequate in respect of the CIGA being carried out by the outsourcing provider, and are not counted multiple times by the multiple entities when evidencing compliance with the Economic Substance Test. This Test can be satisfied in the following circumstances:
1. Entity's board of directors physically meets in the UAE at an adequate frequency regarding the amount of decision-making required at that level.
2. Board meetings are recorded in written minutes, signed by the directors attending the board meetings, and kept in the UAE, which should state strategic decisions in relation to the Relevant Activity.
3. Directors of an entity have the necessary knowledge and expertise to perform the duties of the board.
4. Records of an entity are kept in the UAE.

Where an entity is managed by the shareholder/partner/manager, the above-stated Economic Substance Test satisfaction criteria shall apply to any such shareholder/partner/manager as if they were a director.

An entity is not required to meet the Economic Substance Test in a Financial Year in which it has no Relevant Income.

Notification Form

Each entity and exempted entity shall, within 6 months from the entity's financial year, notify through the Ministry of Finance ESR Portal the following:

• Relevant Activity being carried out by such entity or exempted entity during the Relevant Financial Year.
• Whether it has generated Relevant Income during the Relevant Financial Year.
• Date of commencement and end of its Financial Year.
• Any other information or documents as may be requested by the Regulatory Authority.

Economic Substance Report

An entity that is required to meet the Economic Substance Test shall within 12 months from the date of financial year end, submit an Economic Substance Report throughMinistry of Finance ESR Portal, that shall include the following:

• Type of the Relevant Activity conducted by it.
• Amount and type of the Relevant Income earned by it.
• Amount and type of operating expenses and assets in respect of the Relevant Activity carried out by it.
• Location and the place of its business and, if applicable, plant, property or equipment used for the Relevant Activity by it in the UAE.
• Number of full-time employees with qualifications and the number of personnel who are responsible for carrying on its Relevant Activity.
• CIGA in respect of the Relevant Activity being carried out by it.
• Financial statements.
• Declaration as to whether or not it satisfies the Economic Substance Test.
• In-case of IP Business, a declaration as to whether or not it is a High-Risk IP Licensee.
• In-case an entity outsources CIGA, it shall submit information evidencing compliance with conditions set out under second paragraph of section 'Requirements to meet Economic Substance Test'.

Any of the below entity falls under the category of Exempted Licensee:

Each entity and exempted entity shall, within 6 months from the entity's financial year, notify through the Ministry of Finance ESR Portal the following:

• An Investment-fund.
• Licensee who is tax Resident in a jurisdiction outside UAE.
• Licensee that is the branch of a foreign entity for which Relevant Income is subject to tax in a jurisdiction outside UAE.
• Licensee who is wholly owned by one or more UAE Resident and meets the following two conditions:
1. It should carry out business only in the UAE.
2. It should not be a part of the MNE Group.

• Any other entity as determined pursuant to a decision of the Ministry of Finance.

An Exempted Licensee shall submit Notification Form through Ministry of Finance ESR Portal along-with all information and documentation evidencing its status as an Exempted Licensee, and any further information as may be requested by the Regulatory Authority.

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.

High Risk IP business is an entity which carries on an IP business that:

Each entity and exempted entity shall, within 6 months from the entity's financial year, notify through the Ministry of Finance ESR Portal the following:

• Did not create the IP as an IP Asset which it holds for the purpose of its business
• Acquired the IP Assets either from:
1. Connected Person (Group Entity), or
2. In consideration for funding research and development by another person situated in another country
• Licenses or has sold the IP Asset to one or more Connected Persons, or otherwise earns separately identifiable income from a Foreign Connected Person in respect of the use or exploitation of the IP Asset.

High-Risk IP business shall provide FTA information and documentation demonstrating that the entity does and historically has exercised a high degree of control over the development, exploitation, maintenance, protection and enhancement of the IP Asset, exercised by an adequate number of full-time employees, with necessary qualifications, who permanently resides and perform their activities in the UAE, and shall also provide:

• Business plan showing the reasons for holding ownership in the IP Asset in UAE.
• Information pertaining to employees, including the level of experience, type of contracts, qualifications, and duration of employment with the entity.
• Evidence that decision-making is taking place within UAE.