UAE Economic Substance Regulations

Complying with the new UAE Economic Substance Regulations

In March 2019, the European Union (EU) published an updated blacklist of non-cooperative tax jurisdictions, which included the UAE for not delivering on its commitment to comply with the EU’s good governance criteria.

Since then the UAE has issued new legislation under Cabinet Resolution No. 31 of 2019 which specifies the requirements for companies to have economic substance and an actual presence in the UAE. Although the Resolution was published on 19 June 2019, compliance with the requirements has been in force since 30 April 2019. The anticipated removal of the UAE from the EU’s blacklist will be welcomed by international investors and financial institutions alike.

The key impact of the Resolution is the obligation of companies carrying out Relevant Activities to meet the specified economic substance requirements and to conduct annual compliance reporting.

Who does the Resolution apply to?

Under the Resolution, the economic substance requirements apply to companies that generate income by carrying out the following Relevant Activities in the UAE, whether onshore or in the Free Zones, including the Financial Free Zones:

  1. Banking;
  2. Insurance services;
  3. Investment fund management;
  4. Finance leasing;
  5. Headquarter activities related to (i) conducting management decisions; (ii) incurring operational expenditures on behalf of group entities; and (iii) coordinating group activities;
  6. Shipping;
  7. Intellectual property services;
  8. Holding company activities; and
  9. Distribution and service centre activities.

The Key Obligations of a Business in the UAE

To have economic substance and hold a trade licence in the UAE, either onshore or in a Free Zone, the key obligations imposed on UAE companies under the Regulations are as follows:

  1. The company must conduct its core income-generating activities in the UAE;
  2. The company must be managed and directed within the UAE in relation to the its business activity – i.e. it must hold board meetings and AGMs, with a quorum of directors physically present and signing in the UAE;
  3. It must have an adequate number of full-time employees, incur expenses and have physical assets for carrying out the relevant business activities in the UAE; and
  4. It must demonstrate that it controls the execution of activities which have been outsourced to third parties.

Companies carrying out relevant changes, must submit an Economic Substance Report annually. The Company has an annual obligation to prepare and submit to the Regulatory Authority a detailed report to evidence that the Company satisfies the economic substance requirements. The Report should include:

  1. The value and type of revenue related to the relevant activities;
  2. The location of the activities and the property and/or equipment used to conduct the activities;
  3. The number of employees, their qualifications and the number of people responsible for conducting the activities; and
  4. A disclosure stating that the company has met the economic substance requirements.

The relevant Regulatory Authority where the Reports are to be submitted will be clarified by a further Cabinet resolution.

For entities such as Foreign Branches and Representative Offices which do not have a board and whose management is carried out by a single manager, that manager must be physically present in the UAE when making the main decisions concerning administration and operation of that entity.

Holding companies will have less extensive requirements and will satisfy the requirements if they submit their relevant information to the competent authority, and if they have sufficient staff and premises to carry out the work of a holding company.

The legislation states that further guidance will be issued to assist companies in meeting the economic substance requirements.

What if a Business in the UAE Does Not Comply with the Regulations?

Companies in the UAE carrying out Relevant Activities must file their first Report within 12 months from the end of their fiscal year. Thereafter, there will be an annual reporting requirement. As the rules came in on 30 April 2019, the first Reports for existing companies should be done in 2020.

Non-compliant companies could risk fines and penalties, suspension, withdrawal or non-renewal of licences, and the disclosure of their position to other foreign authorities.

If the company does not comply with the Regulations, they will face the following:

  1. If the Report indicates non-compliance with the Regulations, the UAE Ministry of Finance shall disclose information of the Company to the foreign authorities in the country in which the parent company and/or the ultimate beneficial owner of the Company is resident.
  2. If the Company does not comply it will face the following financial penalties:

a. If a Company fails to meet the Economic Substance Test for one financial year, a penalty of between  AED10,000 and AED50,000 can be imposed by the Regulatory Authority. Repeated failure to meet the Economic Substance Test may lead to penalties of up to AED300,000; and

b. Companies who fail to provide information or provide inaccurate information may be subject to an administrative penalty of between AED10,000 and AED50,000.

3. Non-compliance may eventually also result in commercial licence suspension, withdrawal or non-renewal.

It is important for UAE Companies – both in the mainland and Free Zones – to understand the economic substance requirements and the obligation to annually prepare the Report and file it with the Relevant Authority.

Outsourcing to Third Party Service Providers

The legislation does envisage that corporate entities may appoint a third party to fulfil some or all their economic substance requirements, but in doing so the corporate entity must be able to show it has full control over the activity designated to the third party.

For many UAE headquartered companies and foreign multinationals that undertake genuine business activities within the UAE, the new legislation will have a limited impact, save for imposing additional reporting requirements for which they should await supplementary guidance with regards to the form, content and timing of reporting.

Companies who conduct Relevant Activities within the UAE but which are managed from outside of the UAE should ensure that management is conducted in accordance with the requirements of the legislation. Companies without sufficient operations and management in the UAE to meet the new standards of economic substance should consider conducting core activities within the UAE whilst moving operating assets and expenses into the UAE to ensure compliance.

It is vital to assess your existing level of economic substance in the UAE and how you can start to comply with the new Regulations. The key areas of your operation that the Regulations may impact concern corporate structuring and tax aspects.

How can PRO Partner Group help?

PRO Partner Group is the leading company formation support specialist in Abu Dhabi and Dubai. We specialise in setting up and supporting foreign businesses in the UAE providing secure Local Partner, National Agent and PRO services – establishing companies and assisting in managing their staffing, visas and back office needs and operations.

PRO Partner Group can assist to ensure that your AGM and annual corporate governance and compliance requirements are in place and further advise on the economic substance guidelines and reporting as they become clearer.

For more information please contact a member of the team on info@propartnergroup.com; telephone our Abu Dhabi office on +971 (0)2 448 5120 or our Dubai on +971 (0)4 456 1761. Alternatively, you can me directly at greg@propartnergroup.com or on +971 (0)56 991 1278.

UAE Cuts Government Fees significantly across most Ministries

In the effort to ease cost of doing business in the UAE and to enhance interest by foreign investors, the UAE has reduced fees from 50% to 94% in certain ministries, specifically employment related costs.

As of 1st July 2019 the UAE cabinet issued a decision to lower or cancel fees on 1,500 federal services. This measure is aimed at ensuring fees are comparable to international best practices.

The decision comes as part of many other reforms to help attract foreign investors, create jobs and establish the UAE as a global business hub. Recently, the UAE has permitted 100% foreign ownership of businesses in 13 different sectors, including, manufacturing and renewable energy. In addition, SME’s have been offered small incentives and visa restrictions have been eased – these moves are to diversify the economy away from oil and tourism.

The recent announcement concerning fee reduction or cancellation effects the Ministry of Interior, the Ministry of Economy and the Ministry of Human Resources and Emiratisation. The Ministry of Human Resources includes many services including; work permits, employment contracts and training permits plus many more. The new fee structure is currently being implemented through service centres – Tas’heel, Tadbeer, Tawafuq and Tawjeeh. Below is a list of new fees for work permits in all categories:

UAE Work Permit Fees Dubai Work Permit Fess Abu Dhabi Work permit Fees

The Ministry of Human Resources and Emiratisation has explained that the revised costs for issuing new work permits is in line with a new classification system based on workers skill level. To enhance the push for Emiratisation within the private sector, the ministry will continue to exempt work permit fees for Emirati or a GCC national employees. By reducing operational costs of businesses regarding labour and recruitment, the UAE hopes to promote the country to interest new investors and support entrepreneurship. Other fees which have been officially released include; two-year work permit issuance; two-year work permit renewal; two-year work permit issuance for those sponsored by parents; two-year employee transfer permit:

Two Years UAE Work Permit Fees Dubai Work Permit Fess Abu Dhabi Work permit Fees

Two Years UAE Work Permit Fees Dubai Work Permit Fess Abu Dhabi Work permit Fees Sponsored by Parents

Two Years UAE Work Permit Fees Dubai Work Permit Fess Abu Dhabi Work permit Fees from one establishment to establishment in the UAE

Ministry of Economy fees reduction

In addition, the Ministry of Economy (MOE) has announced new fee structures for around 110 services as part of Cabinet Resolution 51 of 2019. According to the Ministry of Economy’s official website many service fees will be reduced by 50 percent.

Amongst the changes the registration and renewal of Trademarks for Foreign Companies has been cut to from AED 10,000 to AED 6,700, fees for Agent and Appointed Representative disputes have been reduced from AED 12,000 to AED 8,040.

In addition the registration fee for Foreign Branches has been reduced from AED 15,000 to AED 10,050, the fees for publishing official announcements by foreign private joint stock companies has been cut from AED 20,000 to AED 10,000 and the fee of sale or merger of foreign companies has been cut from AED 15,000 to AED 10,050.

Sultan bin Saeed Al Mansouri the Minister of Economy, said that the latest amendments will provide a boost to the business community in the country as the cost of conducting trade and investment activities will drop for both Emiratis and resident business owners, including large, medium and small enterprises. The latest move comes within a series of policies and resolutions decided by the federal and local governments to stimulate and strengthen economic growth, provide new incentives to increase the attractiveness of the local business climate, generate more job opportunities and promote the UAE as a favoured investment destination which supports economic growth and advances UAE rankings on the global competitive indexes.

Al Mansouri emphasised the ministry’s keen desire to create a business-friendly environment where private sector companies can grow and flourish.

For more information contact Jim Swallow on jim@propartnergroup.com


100% Foreign Ownership – Positive List Released

UAE FOREIGN INVESTMENT LAW – 100% Foreign Ownership – Positive List Released

Following the release of the UAE Federal Law No. 19 of 2018 on Foreign Direct Investment, the UAE Cabinet has now announced the Positive List of activities covered by the FDI Law.

The cabinet has approved 122 economic activities across 13 sectors that will be eligible for up to 100% foreign ownership. These sectors are as follows:

  1. Administrative and support services
  2. Agriculture
  3. Art and entertainment
  4. Construction
  5. Educational activities
  6. Healthcare
  7. Hospitality and food services
  8. Information and communication
  9. Manufacturing
  10. Professional, scientific and technical activities
  11. Renewable energy
  12. Space
  13. Transport and storage

This will open up 100% ownership for international companies and investors looking to explore the UAE market particularly with a focus on sectors involving renewable energy, green technology, biotechnology, solar hybrid and green technology production, research and development, logistics and supply chain and e-commerce.

What are the criteria for FDI applications?

General criteria include the size of the investment in the UAE, share capital requirements, and the number of employees to be hired by the business. These criteria will be reviewed on a case by case basis by the relevant authorities in the Emirate where the company is based.

For activities in manufacturing a guideline minimum share capital requirement of between AED 3million and 100milion has been given. Hospital and Hypermarkets guidance has been given at AED 100milion share capital requirement. Other sectors such as construction, engineering, transport, education, medical and dental clinics guidance has been given that share capital should be in line with applicable local laws.
Companies applying for 100% foreign ownership will need to appoint a UAE National (or a 100% UAE owned company) to act as a National Service Agent (NSA) for Immigration and Ministry of Labour matters

For companies that are not on the positive or negative list sectors – such as retail, real estate activities, F&B and hotels, the process is not yet clear. It is still likely that approvals may be granted to these sectors on a case-by-case basis at the discretion of the relevant authorities.

The UAE Cabinet has further confirmed that it will be left to the discretion of the local Emirate governments decide on the percentage of foreign ownership for each sector/ activity. Note that the guidance states that its is up to 100% ownership this any mean that lower percentages than 100% are allowed, but over the 49% currently allowed – for example 70% foreign ownership may be given in certain cases.

At this stage only Dubai Department of Economic Development (DED) has accepted applications made by businesses under this FDI Law. The Dubai DED has already registered new companies and converted existing companies to become 100% foreign owned. Applications at Dubai DED in Dubai have been assessed on a case-by-case basis. We expect this will now extend to Abu Dhabi and other Emirates soon.

This announcement represents a much-awaited step towards the development of foreign investment regulations in the UAE. It is expected to considerably boost the level of FDI in the UAE as a whole and cement the role of the UAE as a global business hub for foreign investments.

For companies awarded increased foreign ownership as an FDI Company the benefits are extensive and include the following:

  1. FDI Companies licensed under the FDI Law shall be treated as UAE National Companies under UAE and international agreements.
  2. FDI Companies shall be guaranteed confidentiality of technical, economic and financial information compliant with UAE laws and international treaties.
  3. FDI Companies may transfer their earnings and proceeds outside the UAE.
  4. Employees of FDI Companies may transfer their salaries and entitlements outside the UAE.
  5. FDI Companies, subject to approval, can add shareholders, sell the business, change their legal form or enter into a merger without losing the privileges awarded to them under the FDI Law.

For existing UAE Companies looking at the new FDI it may be prudent to review current arrangements with local partners to ensure that they can facilitate the process and share transfers when required.

How can we help?

PRO Partner Group is the leading company formation support specialist in Abu Dhabi and Dubai. We specialise in setting up and supporting foreign businesses in the UAE providing secure Local Partner, National Agent and PRO services – establishing companies and assisting in managing their staffing, visas and back office needs and operations.

Where PRO Partner Group acts as the local shareholder we will always ensure that there is and exit / sale strategy for companies where we act as the 51% shareholder ensuring that companies can acquire an increased percentage of their shares at no penalty if they are awarded FDI status. Additionally, PRO Partner Group can continue to act as the Local National Service Agent (NSA) to continue to assist with Labour and Immigration matters.

PRO Partner Group can assist with FDI applications for existing partnered companies and new companies looking to apply for up to 100% ownership.

For more information please contact a member of the team on info@propartnergroup.com in Abu Dhabi +971 (0)2 448 5120 ,or Dubai +971 (0)4 456 1761, or contact Greg Hastings direct on greg@propartnergroup.com or +971 (0)56 991 1278.


PRO Partner Group Introduces Add-On HR Services

PRO Partner Group HR Services was developed with one goal in mind – to offer add on services enabling our clients to focus on their company set up and core business activities. Our dedicated team of experts offer professional HR services that are completely customised to individual company requirements. Our HR Services packages offer the following:

HR Admin Support

Handling of employees’ HR documentation can be a laborious activity that takes up valuable time and resources. PRO Partner Group can take this administrative burden away by providing you with a variety of HR Admin Support Services inclusive of;

  • Maintenance of HR files for employees
  • HR template letters and NOCs
  • Leave Management
  • Employee Handbooks
  • Employment Offer Letters

HR Consultancy

As part of our collaboration with a specialist HR Consultancy Firm, we offer HR advisory services covering the Reward, Performance and Organisation Design areas of HR. We work closely with our clients to develop bespoke HR frameworks, policies and processes aligned to their HR requirements and corporate strategy. This enables our clients to draw flexibly on specialist advice whilst providing additional professional resources during critical periods or for specific projects.

Payroll Management

Our experienced team will ensure that all your payroll and employment obligations are met and that your organisation complies with the Wage Protection System (WPS). PRO Partner Group payroll management offering includes:

  • Preparing and issuing pay slips
  • Wage Protection System (WPS) registration
  • WPS payment through UAE Exchange or Banks

Recruitment Solutions

In partnership with some of the region’s leading recruitment agencies we offer temporary, contract and permanent staffing solutions. We work alongside our recruitment partners to ensure that you have the right people in your organisation at the right time.

Why use PRO Partner Group HR Services?

  • TIME: HR processes can be a time-consuming task that can prevent managers from spending time on core business activities. Outsourcing HR Services, for example operating payroll or maintaining employee HR files will ensure effective and consistent HR delivery and increased efficiency without any time consumption from the company.
  • COST: Outsourcing HR Services can work out to be more cost effective than having an internal HR function especially for smaller companies where the HR demand will not be as great as larger companies. In cases where there is limited HR presence or specialist HR knowledge in a company, use of the advisory and recruitment solutions could be a cost-effective model, ensuring that such cost is taken only when specific projects or recruitment needs arise.
  • EXPERTISE: Companies with a generalist only or limited HR function can access expert recruiters and HR specialists to support the delivery of specialised, critical, or time sensitive projects/hires.

Contact us on +971 (0)4 456 1761 – info@propartnergroup.com to speak to one of our experienced team members who can assist you with any questions or requirements you may have.