In line with the UAE’s vision to provide world-class, high-quality services, residing foreign nationals no longer need to get a residency visa sticker on their passports. Previously, this sticker was physical proof that you were legally allowed to live in the country. From now on, your Emirates ID will include all information previously mentioned on the residency sticker.
The decision to use the Emirates ID card as proof of residency is part of a larger package of measures to improve government services and provide residents with better amenities. This new process is good news for business owners and entrepreneurs, as it allows for the possibility of printing your employees’ residence details forms in just three steps.
This post will help you understand the link between your Emirates and your UAE residency visa. In this article, we cover the following topics:
- What is an Emirates ID?
- Emirates ID features – explained
- What is a residency visa sticker?
- What has changed and why?
- How will airlines verify their residency status when residents arrive back in the country?
- When can you renew your Emirates ID?
- How to update details on your Emirates ID
- Replacing a lost, stolen, or damaged Emirates ID card
- Why entrepreneurs choose Meydan Free Zone
What is an Emirates ID?
The Federal Authority for Identity, Citizenship, Customs and Ports Security (ICP) is responsible for issuing Emirates ID cards. Each citizen and permanent resident of the United Arab Emirates must have a valid Emirates ID card. The purpose of the Emirates ID is:
- to access government services
- a form of identification for UAE nationals while traveling within the GCC countries
- proof of identity while going through the electronic gates or smart gates at airports in the UAE
- for voting in the elections of the Federal National Council.
Emirates ID features – explained
Last August, the UAE government introduced the ‘next generation’ of Emirates IDs. It utilises laser-printing technology to create a 3D image depicting the cardholder’s date of birth. The ID card’s precise lettering, ultraviolet ink, and line drawings are all examples of cutting-edge smart card technology.
The new and improved card has several valuable additions, such as storing extensive information and a lifespan of more than ten years. This chip can hold as many as 32,000 letters of data. Certain records – including your personal data – are encrypted and accessible only to authorised personnel by specialised devices to verify user credentials. This prevents unauthorised access and maintains the confidentiality of sensitive information.
The components of the Emirates ID card ensure accuracy and security. It contains nine security elements that make forging the card very difficult, much above the existing industry standard for cards like banking credit cards. The card has a unique 15-digit number assigned to the holder. You may use this number to access any government service and those offered by specific non-government and commercial organisations that similarly demand proof of identification.
What is a residency visa sticker?
An expatriate must first enter the United Arab Emirates on a visit visa or an entry permit to get a residency visa. Anyone applying for a residency visa who is 18 or older must demonstrate their health by passing a medical examination. The UAE Government website says, ‘They also have to pass a security check and apply for an Emirates ID card from the Federal Authority for Identity and Citizenship’. After completing these steps, the immigration department will affix a residency visa sticker to your passport.
What has changed and why?
Since April 11, 2022, the ICP no longer issues residency stickers to expatriates. Instead, they will use the Emirates ID cards as proof of their valid UAE residency.
According to the ICP, the decision to cancel resulted from a decision by the UAE Cabinet. It was a two-fold approach to support the improvement of services and the use of best practices as well as to achieve the flexibility that aims to cut down on the number of steps needed to get a residency permit or renew one.
Previously, you would apply separately for the residency and Emirates ID. Now the application will be under a new unified form. This also includes issuing and renewing the residency and identity card services. Additionally, it ends the tedious process of receiving and returning a resident’s passport to affix the residency sticker. This transformation of the Authority’s residency services improves customer satisfaction and provides issuance and renewal procedures flexibility.
The ICP’s smart application also allows you to receive an electronic copy of the identification card. This is in support of the flexibility of usage and thus enhances the added value of the ID card in confirming the personal identity online.
How will airlines verify their residency status when residents arrive back in the country?
Airlines can verify your residency using your Emirates ID and passport number, which contains the residency information. A passport reader can help with this.
When can you renew your Emirates ID?
UAE citizens can renew their Emirates IDs six to one months before expiration. Foreign national residents can only apply for renewal when their residency visa is renewed or reissued. You will have to pay a late fee if you do not renew your expired ID within 30 days.
You will get a text message from the ICP asking you to renew your ID card. You may use the ICP website or a recognised typing service to renew your ID card. You may be required to visit one of ICP’s service centres to submit your biometric information.
How to update details on your emirates ID
When an Emirates ID cardholder’s information changes, they have one month to notify the appropriate department in ICP. All citizens and foreign residents of the Emirates are subject to this regulation.
Replacing a lost, stolen, or damaged Emirates ID card
If you have lost or damaged your Emirates ID card – or it has been stolen – you must seek a replacement from ICP. Here’s what you need to do if you need to replace your Emirates ID:
- Report the incident to the nearest ICP Customer Happiness Centre.
- After reporting the incident, request a new ID card by filling out an application either at the centre or through their app.
- Pay the fees. Replacement of a lost or damaged ID costs AED 300, plus AED 70 for typing centres or AED 40 for ICP’s eForm. Express ID replacement costs an additional AED 150.
Why entrepreneurs choose Meydan Free Zone
A major benefit of opening a company with us is getting a premier location for a business address. Located in The Meydan Hotel, Meydan Free Zone is 15 minutes from Dubai International Airport and has quick access to Downtown Dubai, Dubai Media City, and Sheikh Zayed Road. Furthermore, a prestigious business address presents a high-end status and can help get top-of-the-line clients.
Being a member of the Meydan Free Zone family, you also get access to a fully equipped Business Centre and monthly networking events. Our Business Centre has a world-class professional environment and an ambiance that inspires performance and provides privacy. In addition, you can also take advantage of our exceptional offers for food and beverages and stay at The Meydan Hotel if needed.
Of course, there are other benefits to setting up a business in a free zone, such as no sales tax, no user tax, and no income tax.
At Meydan Free Zone, our goal is to help set up companies and turn them into successful enterprises. Our consultants will support you with all aspects of your business setup in Dubai, so you can focus on growing your business.
The United Arab Emirates is the biggest regional hub for startups – the UAE is home to over a third (35%) of all new startup companies in the MENA region, according to Statista. You will need a banking solution for your startup to get funding, pay staff, and receive payments from customers.
However, as discussed in a recent Hub71 startup finance roundtable, getting access to banking has often been tricky for new companies in the UAE. Fortunately, however, this is changing, and as our banking 101 for startups in the UAE shows, new solutions are emerging to make managing your company’s money easier.
In this blog you will learn about:
What Is KYC, And Why Is It Important?
KYC, which stands for ‘know your customer, is a set of global standards that financial services companies are encouraged to follow. Knowing your customer is to encourage banks, credit providers, accountancy businesses and other financial service providers to perform background checks on the people using their services and depositing money with them.
KYC is intended to help with:
- Making it harder for criminals to use the banking sector to store proceeds of crime
- Make it more difficult to use banks for money laundering
- Reduce the risks of fraudulent activities
- Clamp down on tax avoidance
- Tackle terrorism finance
- Avoid reputational damage for banks
Knowing your customer is important because many governments around the world – including the UAE – want to tackle illegal behaviors by making it harder for criminals to use the banking system. KYC is an effective tool for tackling financial crime, so banks are encouraged to use it during their onboarding processes. Failing to perform KYC could lead to fines or reputational damage for banks and other financial services businesses. In the UAE, KYC is mandatory.
If you are a startup in the UAE, the country’s banks will require you to undergo their KYC process when applying for an account. This involves providing detailed information about who you are, your funds, and how your business works. While it may at first appear onerous, for legitimate businesses complying with KYC is usually very straightforward. It also means that your customers and investors can have more trust in your business, as you have demonstrated that you are a legitimate company.
Documents Required To Open A Business Bank Account In The UAE
Here are the basic documents required to open a bank account in Dubai, UAE. Opening a business bank account in the UAE for startups is typically fairly straightforward, although it can be useful to work with a local partner who understands the process and can guide you through the steps involved. To open your UAE business bank account, you will need to collate the following kinds of documents:
- An identity document – such as an Emirates ID card or a valid passport with a residence visa
- A CV which describes your professional background – some banks require you to show several years of professional experience before opening a business bank account.
- A utility bill to prove your current address – must be dated from the previous three months.
- Your UAE business’s founding documents, including free zone license
- A personal bank statement for all shareholders and, if applicable, corporate bank statements for the previous six months
- Evidence of proof of ownership of your business
- A business plan which includes information about your clients, activities, financial plan and profit and loss projections
Sometimes banks may request further information as part of their KYC process. At Meydan Free Zone, our consultants can advise you on all the documents you’ll need to open your Dubai business bank account.
Cost Of Opening A Business Bank Account In Dubai, UAE
Banks in the UAE do not charge you any money to open a business bank account. The UAE’s banks are very business-friendly and want to encourage entrepreneurship – so there are rarely any charges for opening the bank account itself.
That said, many banks will have minimum monthly balance requirements or minimum monthly payments, so it is important to ensure that you will be able to meet these going forward. The minimum monthly balance can range from AED 50,000 to AED 500,000, so it’s vital to ensure you’ll be able to meet these minimums. Failure to do so could lead to fines from the bank. You might also need to meet a minimum opening balance deposit.
If you’re unsure, our consultants at Meydan Free Zone can advise you on the minimum monthly balance for any banks you’re interested in working with.
Why Do Entrepreneurs Choose Meydan Free Zone?
Meydan Free Zone is a startup-friendly business hub located in the centre of Dubai, close to the airport and business districts. We host numerous innovative startups working in a wide range of industries in the free zone, providing them with payment solutions that make it easy to get their business up and running and receive funds from customers. You’ll also benefit from excellent technical support, 24/7 access and attractive, modern offices.
Our friendly and experienced consultants can support you with every step of business setup in Dubai free zones, and we also offer solutions for e-commerce licenses in Dubai, Additionally, our Easy Payment Plans make it easier for you to manage your startup costs.
If you are looking for a payment solution and free zone for your startup, contact Meydan Free Zone to begin your business journey today.
On 31st January 2022, the UAE’s government announced it would be introducing a new corporate tax. Historically, The United Arab Emirates has not imposed taxes on the profits of corporations except those in a handful of industries such as resource extraction and foreign banks. However, from the financial year beginning on 1st June 2023, many more companies operating in the territory will need to begin paying the new 9% corporate tax rate.
The new UAE corporate tax will not affect every business, and many will not need to pay the tax at all. Let’s learn more about the new UAE corporate tax and what it means for you.
In this quick guide, you will learn about:
Here is everything you need to know about the United Arab Emirates’ newly announced corporate tax.
The UAE’s corporate tax history
For many years, the United Arab Emirates operated as a very low tax jurisdiction. Citizens do not pay tax on their income and most companies have never had to pay any form of corporate tax. Most of the state’s revenues came from nationalised and private fossil fuel extraction industries that paid around a 50% tax on revenues. Meanwhile, foreign banks have long paid a 20% corporate tax on operating profits, and hotels and restaurants in Dubai paid certain taxes, too.
However, in recent years the United Arab Emirates has begun trying to diversify its economy away from fossil fuels. This means that there are a growing number of businesses that currently do not pay any tax at all. With less potential revenue from fossil fuels and a fast-growing economy, it makes sense for the government to tax revenues on businesses to enable further investment in infrastructure, education and healthcare.
The United Arab Emirates first introduced a VAT tax in 2018, which imposed a 5% levy on all consumer purchases. Then in January 2022, the government announced a corporate tax of 9% that would come into effect the following year.
Another reason is that the United Arab Emirates has introduced its new corporate tax is to bring the country in line with international norms and to help tackle tax avoidance. Most other advanced economies around the world impose taxes on business profits, and the 9% tax on UAE companies is still significantly lower than the norm in most other developed countries (which is usually around 20%). The new UAE corporate tax will also help disincentivise foreign businesses from trying to use the country as a base to avoid tax in their home countries.
The UAE’s 2023 corporate tax – what is it?
The UAE’s 2023 corporate tax will be a 9% tax on the profits (revenue minus expenses) of all businesses which generate over 375,000 AED (about USD $100,000). Businesses that generate less than this sum of money will continue to pay a 0% tax rate.
In addition to the corporate tax, the UAE has also announced that large multinational firms with profits of more than EUR 750 million will have to pay a 15% tax – this is in line with the Global Minimum Corporate Tax Rate agreement.
The new UAE corporate tax will come into effect in the tax year beginning June 1st 2023, and so most companies will have to start setting aside money to pay their taxes from that date. Businesses whose tax year begins in January will not have to start paying tax on revenues generated before 1st January 2024.
Features of Corporate Tax Regime
The corporate tax regime in Dubai includes a diverse amount of policies, from tax-free free zones to corporate taxes, VAT systems and the absence of federal income tax. Read on to find out notable features of the tax system.
- Who can be taxed?
Legal entities with notable legal personalities like LLCs, PSCs, PJSCs, LLPs and others will be levied with tax. On top of that, any foreign legal entity that earns income in the UAE and is a tax resident will be charged. Although free zones will incur 0% corporate taxes in return that they comply with all regulatory requirements, this is also applicable to free zone companies that engage in trade activity with the mainland. Non-residents and residents of the UAE may also be subjected to corporate taxing policies.
- Tax rates
If a business earns income that doesn’t exceed AED 375,000, 0% tax will be charged, and 9% will be charged if income earned exceeds AED 375,000. Also, a different tax rate will be charged for larger multinational companies that have different business conditions.
- Who is exempted?
Upon receiving dividends or selling shares of a subsidiary company, corporate tax law will include a participation exemption from corporate tax. Also, charities, public benefit organisations, investment funds, businesses engaged in the extraction of oil and resources along with wholly government-owned companies are excluded from corporation taxes.
- Calculating taxable income
Generally, the account net profit or loss shown in the company’s financial statements will be used to determine the tax percentage and income. In case of a company loss, the business could offset the value against taxable income in future financial years up to 75%.
A group of companies may be able to form a tax group in which they would be capable of being treated as a sole taxable entity. To do so, a company or subsidiary needs to refrain from being an exempted party or being registered in a free zone.
- Tax credits
In efforts to avoid double taxation, the regime will allow for a credit in parallel with foreign tax paid in a foreign jurisdiction against foreign tax income which has not been exempted.
Will free zone companies be taxed?
It is not yet entirely clear how the new UAE corporate tax will apply to businesses that are based in free zones. According to the government announcement, free zone companies will still be able to benefit from the advantages provided by their own specific free zone’s pre-agreed incentives. However, in future, free zones may decide to change the rules and could potentially introduce the tax.
If free zone companies do business with mainland businesses, they will normally have to pay the corporate tax on revenues generated by working with them.
Free zone companies will also need to register and file a corporate tax return, even though they won’t have to actually pay any tax.
Will personal income be taxed in Dubai?
No, there are currently no plans to tax people’s personal income in Dubai or the rest of the UAE. The only form of personal income tax in Dubai is the 5% VAT tax which everyone must pay on consumer goods and services.
Will there be capital gains tax on dividends in Dubai?
No, there are currently no plans to introduce a capital gains tax on dividends received in the United Arab Emirates or Dubai. At the time of writing (March 2022) business owners and investors do not pay any capital gains tax on dividends from the businesses they’ve invested in.
Why start your company in Meydan Free Zone?
Meydan Free Zone, located in central Dubai, is the perfect place to launch a business in the emirate. Companies based in our free zone can continue to benefit from the pre-existing incentives we have negotiated with the government, including a 0% tax rate on profits. So, even when the new UAE corporate tax rate comes in from June 2023, you will not be required to pay it (unless you do business with mainland companies). We have no plans to change this and expect to continue offering a 0% corporate tax rate for all our business customers for the foreseeable future (or until any new regulations are introduced which change this).
Besides our commitment to a 0% tax rate, choosing Meydan Free Zone provides plenty of other benefits. Our free zone is based close to the central business district, airport, roads and leisure facilities. It provides 24/7 access, high quality internet connections and all the technical support you need to run a successful company. Our experienced consultants can support you with all aspects of business setup in Dubai, which means you can focus on launching your business – and leave the admin to us. We can even advise you on things like filling in your corporate tax return (free zone companies will still need to file and register one after June 2023, even though they don’t have to pay the tax itself).
We also provide a number of additional services to entrepreneurs hoping to start companies in Dubai. For example, Meydan Pay provides you with a digital wallet and an IBAN which allows you to receive payments from your customers anywhere in the world. Learn more about Meydan Pay here.
Similarly, Meydan Commerce is a unique offering to that helps you to sell products via e-commerce websites like noon and Amazon. This can be really helpful if you want to run an e-commerce company from Dubai, UAE. And, to make launching your enterprise more affordable, our Easy Payment Plans let you spread the cost of starting your Dubai free zone company over the course of several months.
Join thousands of other entrepreneurs who’ve launched successful companies in the UAE and benefit from the continued 0% corporate tax rate we offer. Contact Meydan Free Zone today!
FAQ 1: Is UAE tax-free for business?
Business set up in the UAE mainland will be subjected to a certain amount of taxes, although free zones in Dubai, such as Meydan Free Zone allow 0% corporate and personal tax to be levied upon business profits.
FAQ 2: Who pays corporate tax in the UAE?
All businesses operating in commercial activities and other businesses are subjected to paying corporate tax with a few business models having exemptions. Ex- Businesses involved in the extraction of oil.
FAQ 3: Why is corporate tax introduced in the UAE?
A detailed and extensive corporate regime in the UAE was introduced in order to amplify Dubai’s global position as a hub for investment and innovative startups, with affordable registration costs, inclusive of no corporate taxes.
FAQ 4: How much is corporate tax in the UAE?
Dubai follows a progressive corporate tax system with rates between 9% to 55%.
The UAE is designed for business, and to that end everything has been done to encourage and support entrepreneurs as well as business people. This means creating a secure and well-regulated environment which continues to attract companies from around the world.
From time-to-time certain new regulations are brought in or changed, and so it’s important to ensure that you remain up-to-date and your business is fully compliant.
These are the key areas we will cover to ensure, by the end, that you have a solid working knowledge of UBO, plus some guidance on what next steps you may need to take and how to go about making them.
Who is the Ultimate Beneficial Owner (UBO)?
Let’s start at the beginning. UBO is a set of regulations put in place to increase financial transparency when it comes to business ownership – with the goal of more effectively combating money laundering and terrorist financing.
These new rules are not particularly difficult to meet, and working with an expert can help ensure that your company remains fully compliant with these regulations.
What is an Ultimate Beneficial Owner (UBO) in the UAE?
In short, the ultimate beneficial owner (UBO) is the person who is the ultimate beneficiary of a company. Let’s take a simple example: If a person owns significant shares in Company X, and Company X itself in turn owns significant shares in Company Y, then the person in question would be seen as the UBO of Company Y. (This is so unless the ownership is through an indirect arrangement.) In this way UBO regulations trace a line of ownership or influence from one company to another.
Of course in reality there may be many, complex layers of ownership when it comes to a company, so this is what needs to be unpicked carefully to ensure that the UBO is clearly identified.
Unless you are exempt, as a UAE business owner, you need to prepare a register of beneficial owners of your company, and file it with the authorities. Not doing so could result in a penalty, so it’s important to take action.
Scope Exclusion: The Regulations do not apply to the following entities
- Companies wholly owned by the Federal or local government or any other companies wholly owned by these companies
- Companies licensed or registered in Financial Free Zones of UAE (Dubai International Financial Centre and Abu Dhabi Global Markets).
Why is UBO important?
Ultimate Beneficial Ownership regulations in the UAE are extremely important as they are designed to boost transparency, and in so doing will help reduce the avoidance of tax, money laundering, as well as reduce other areas of criminal activity.
It has a secondary benefit as well – by further strengthening the regulatory environment, the UAE will continue to attract more global businesses to the country, aligning it more closely with best-practice environments.
It comes together to further cementing the UAE as a global destination for business.
Ultimate Beneficial Owner Vs Beneficial Owner
An Ultimate Beneficial Owner (UBO) is someone who receives maximum benefit from a financial transaction, and even more in comparison to a Beneficial Owner (BO).
In simple terms, a UBO receives the most benefit and welfare regardless of the chain of control, whilst a beneficial owner is someone who enjoys the benefits of ownership even though the title to the relevant property is entitled to another name. UBOs sometimes conceal their identities and can be less visible than the general BOs, for instance, shareholders, guardians of minors, people with the power of attorney, or even nominee directors that indirectly or directly receive an abundance of benefits or profits. With beneficial ownership, a ‘natural’ owner is inclusive of the term, instead of a member or a shareholder, and establishes ownership or control in a legal entity or arrangement.
Breaking Down UBO Regulations
Apart from companies set up in financial free zones, or those owned by the government, UBO regulations apply to all UAE businesses. They were introduced in October 2020, giving businesses 60 days to create a process that would enable the filing of their UBO information. While it’s down to the individual business to decide on their UBO, there is guidance for them to follow.
When you’re looking at your own company, a UBO is defined as someone who has control, or voting rights, with at least a 25% shareholding in the company. This individual would also have the ability to fire most of the managers and directors in the company. In cases where there is no such person, then it’s down to whoever has the most significant control over the business.
You also need to decide who are the nominee directors and managers. This is a little easier, in that they’re usually in senior positions but, importantly, they are following instructions from someone else.
While partners and shareholders are currently classified in UAE commercial company law, the UBO regulations mean further information is required, including the voting rights of each shareholder.
It is not known whether the UBO information will remain private (i.e. just for official use) or will be made public.
It’s also important that your company notifies the authorities if any significant changes occur in your company which might affect the UBO. This must be done within 15 days of the change being made.
There is a penalty for not complying with the UBO, including fines or other penalties from the UAE Ministry of Economy.
Steps for UBO Tracking and Reporting of Compliance Through a Declaration
- Initial tracing and Identification of UBOs
- Prepare company secretarial records
- A Shareholder and or Partner’s Register
- A Register of Beneficial Owners( e.g. even may include relevant details of local sponsors based on side / Trust / Mudaraba / Foundation agreements etc.
- A Register of Directors and Nominee Board members/Directors.
- Any changes to such information shall have to be updated within fifteen (15) days from the date of the change.
- Submission of a UBO declaration to the competent authorities
- There will possibly be severe consequences for non-compliance and the Minister of Economy or the Licensing Authority may impose sanction(s) from the list of administrative sanctions, that may be issued in due course.
- The method of submission of the UBO declaration are online. Connect with our staff on 800FZ1 to know how to file for UBO or log into our online portal to find all information.
All the registered entities are required to file a declaration with personal particulars ( e.g. name, nationality, address, passport, date of birth, extent of shareholding etc.) relating to identification and authentication of their shareholders/partners and or their ultimate beneficial owners with the Registrar and the licensing authorities ( e.g. Ministry of Economy, Meydan Free Zone) registered in the UAE. The expected date at the time of incorporation/ registration of new companies.
Note : The Registrar may also require the submission of their passport copy, proof of residential address, share certificates, MOA etc., and any other relevant documents in relation to the UBOs and possibly senior management and or nominee board members as well.
The affected entities are thus required to take adequate steps to compile and maintain relevant and up-to-date accurate data on their real beneficiaries and maintain the same in the future, including any subsequent changes.
All the companies are thus required to maintain the following registers:-
FAQ 1: What makes a beneficial owner?
Primarily, a beneficial owner is someone who owns and exercises more than 25% of a company’s shares and voting rights (if applicable).
FAQ 2: What does UBO stand for?
UBO stands for Ultimate Beneficial Owner.
FAQ 3: What is the difference between beneficial owner and ultimate beneficial owner?
A beneficial owner is someone on whose behalf the financial transaction is conducted, simply, the ‘natural’ beneficiary. An ultimate beneficial owner is someone who receives the paramount benefit when an organisation or institution goes ahead with a transaction.
FAQ 4: Why do we need to identify UBO?
The most important reason is to prevent the occurrence of malevolent fraud like terrorist financing or money laundering by massive corporations and legal entities.
FAQ 5: How do you calculate ultimate beneficial ownership?
The company usually discloses the percentage of shares held by an UBO in its business verification check procedure.
The new economic substance regulations (ESR) aim to stop non-domiciled directors who have registered (and who operate) companies in the UAE from evading tax in their home country. It’s an important step by the UAE to ensure the country is not blacklisted as ‘non-cooperative’ by the EU. In turn, it creates a better and fairer business environment.
Regardless of how you’re setting up your business, it’s important that you’re aware of the UAE’s economic substance regulations. Essentially, your company needs to be managed or directed within the UAE, have an adequate number of UAE-based staff (who are full-time), generate the majority of your income in the UAE, as well as keep adequate assets in the UAE and be able to demonstrate operating expenditure in the country.
What is ESR UAE?
If this all feels a little overwhelming, we’ll break down what you need to know ahead of time in this article. In simple terms, ESR is defined as a set of standards that requires companies in the UAE to carry out business activities substantially in the country of their jurisdiction. The sole purpose of ESR would be to discard businesses with underlying intentions of registering their business to enjoy tax and economic benefits. In a country like Dubai, with highly favourable tax concession treatment, it’s logical that entities should establish stricter requirements to ensure sustainability in income generation.
The key industries to which ESR applies to include: shipping, fund management, insurance, banking, lease financing, distribution and service centres, holding companies, company headquarters, and intellectual property businesses. This is not an exhaustive list, so it’s important to do your research to ensure whether you need to take action. It’s worth talking to the experts on this point to ensure you remain compliant. There can be fines of up to AED 300,000, so it is critical to get the best advice.
Manage Your Business from Within the UAE
With the new economic substance regulations, your managing director (or one of your company’s senior management) has to be based in the UAE. That essentially means they operate from the UAE full-time, and it must be within the specific activity in which the company has been set up. The size of your business does not affect this requirement.
If your company has a board of directors, you must be able to show that there have been UAE-based meetings and that minutes have been taken from these meetings.
Employ Full-Time Staff in the UAE
In addition to requirements for management, you must ensure that your employees are physically present in the UAE. (This doesn’t apply to outsourcing.)
Ensure Your Main Income is Generated Within the UAE
The work that your company does must be conducted from within the UAE. It’s acceptable if your clients are out of the country, but your key place of work should be the UAE.
Own Assets and Spend on Local Business Services
Your company needs to be spending an adequate amount of operating expenditure in the UAE. As with many of the regulations, it’s hard to gauge exactly how much or to put an exact figure.
When it comes to ownership of assets, it’s also a little unclear, but likely that assets will need to be declared.
It’s true that ensuring you comply with these regulations does take some thought and some work. It’s part of the UAE’s ensuring that it continues to be a global hub for business, attracting the most prestigious companies from around the world and being fertile ground for entrepreneurs.
We have talked about the situation in terms of what it means for your company. Let’s end by looking at the government’s official announcement that brought these regulations into effect, outlining, as it does, how it responds to actions by the European Union:
As part of the UAE’s commitment as a member of the OECD Inclusive Framework, and in response to an assessment of the UAE’s tax framework by the European Union Code of Conduct Group on Business Taxation, the UAE issued Economic Substance Regulations (Cabinet of Ministers Resolution No. 31 of 2019), (the “Regulations”) on 30 April 2019. Guidance on the application of the Regulations was issued on 11 September 2019 (Ministerial Decision No. 215 of 2019), and Cabinet Decision No. 58/2019 on the Determination of Regulatory Competencies lists the Regulatory Authorities tasked with the administration and enforcement of the Regulations. Amendments to the Regulations were made by Cabinet of Ministers Resolution No. (57) of 2020 on 10 August 2020, and updated Guidance was issued on 19 August 2020 Ministerial Decision No. (100) of 2020. The Regulations require UAE onshore and free zone companies and certain other business forms that carry out any of the defined “Relevant Activities” listed below to maintain and demonstrate an adequate “economic presence” in the UAE relative to the activities they undertake (“Economic Substance Test”).
Your Free Zone Options
Now is the time to take your business to a new level at Meydan Free Zone, an economic district that boasts one of the most prestigious addresses in the country, close to the key commercial and financial hubs of Dubai.
With a great mixture of investment and lifestyle benefits, you can live and work in Meydan’s premium mixed-use developments – offering high-quality office spaces and elegant lifestyle communities.
And it couldn’t be easier to get started. All your individual business needs can be met with a smooth registration process, tailored packages, and assistance on-hand.
Isn’t it time you started your new business journey with Meydan Free Zone?
FAQ 1: What are Economic Substance Regulations in UAE?
ESR is a set of regulations directed at maintaining economic substance by requiring UAE onshore and free zone companies to carry out certain ‘defined’ business activities which help establish a considerable economic presence in the UAE. This also plays a part in making sure that companies aren’t subjected to any tax evasion mechanisms.
FAQ 2: Who has to file ESR in the UAE?
Local companies in the UAE, whether they are located in free zones or onshore, and any resident business entity are required to file for ESR.
FAQ 3: Is ESR filing mandatory?
Filing for ESR would be mandatory if the business generates income or revenue from the Relevant activity under ESR regulations. There is no room for claiming an exemption if the business directly falls under a certain activity.
FAQ 4: What is ESR in compliance?
Any business structure that carries out listed Relevant activities are required to perform an Economic Substance Test as they generate a substantial amount of income from the listed business activities.