accountants and business advisers
09 Jul 2019
In December 2017, the European Union (“EU”) Code of Conduct Group on Business Taxation assessed the tax policies of jurisdictions with no or only nominal tax against the criterion of ‘economic substance’. The EU applies three listing criteria, which are aligned with international standards and reflect the good governance standards that Member States comply with themselves, i.e., transparency, fair tax competition and implementation of OECD's Base Erosion and Profit Shifting (BEPS) minimum standards.
In November 2018, the Organization for Economic Cooperation and Development (‘‘OECD’’) also announced a new global standard on Base Erosion and Profit Shifting (“BEPS”) Action 5 for inclusive framework jurisdictions to prevent business activities from being relocated to the ‘non cooperative jurisdictions’ to avoid the substantial activities requirement that applies to preferential regimes for geographically mobile income.
In response to the above, and to circumvent reputational concerns, governments of the ‘non cooperative jurisdictions’ - Bermuda, British Virgin Islands (BVI), Cayman Islands, Isle of Man, Jersey, Guernsey, Mauritius, Bahamas and Seychelles; enacted legislation introducing enhanced economic substance requirements for tax purposes, bringing the rules into force from 1 January 2019.
Following its commitments made to remedy EU concerns and to implement BEPS related measures. the UAE Cabinet issued the Cabinet of Ministers Resolution No.31 of 2019 (concerning economic substance regulations in the UAE, “the Regulations”) on 30th April 2019, requiring all in-scope UAE entities that carry on certain activities (“Relevant Activities”) to have demonstrable economic substance in the UAE with effect from 30th April 2019.
The following are considered as “Relevant Activities” under the Regulations:
An entity must satisfy the following key criteria to meet the Economic Substance Test in relation to any Relevant Activity carried on by it:
A relevant entity will be required to report specified information on its Relevant Activities on an annual basis to the relevant regulatory authority (that has issued the trade license to such an Entity).
[Source: UAE Ministry of Finance]
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