TAX

Economic Substance Requirements in the UAE for DIFC Entities - Revised Deadline

With respect to Economic Substance Regulations, Dubai international Financial Center has recently announced a notification filing update to be carried out through the DIFC Client Portal.

 

Revised Notification Deadline – 12th of June 2020  

Following the recent update from the DIFC, the notification deadline for Licensees registered in DIFC is 12th of June 2020. 

 

Return/ Report Deadline – 31st of December 2020  

  • Return/Report filing requirement applies to DIFC Licensees that undertake a Relevant Activity   
  • DIFC Licensees that undertook a Relevant Activity during financial year ended 31stof December 2019 must submit the Return/ Report by 31st of December 2020 i.e. 12 months after the financial year end 

 

Economic Substance Test for DIFC entities:  

In order to meet the Economic Substance Test, a DIFC Licensee needs to demonstrate all three of the following conditions: 

  • Adequate employees, physical assets & expenditure in the UAE
  • Core Income Generating Activities (“CIGA”) are undertaken in the UAE
  • Directed and managed in the UAE

Please note it is important to analyze and conduct an impact assessment of the businesses activities in order to determine whether the business falls under the purview of ESR in the UAE.  

As per the guidelines introduced by the DIFC, in order to determine whether a Relevant Activity is taking place, a substance over form approach should be followed.  This means looking beyond what is stated on the commercial license to what activity is being undertaken by the entity.  

Penalties for non-compliance

Non-compliance with the obligation to file an economic substance notification before the deadline may be subject to a fine of up to USD 25,000 from the Registrar of Companies under Article 31(2) of the Operating Law, DIFC Law No. 7 of 2018. In addition, penalties ranging from AED10,000 to AED50,000 will be imposed under ESR. The fines increase to between AED 50,000 and AED 300,000 for the subsequent fiscal year.

Background - Economic Substance Regulations 

On 30th of April 2019, the UAE enacted the Economic Substance Regulations (“ESR”), through Cabinet Resolution No. 31, including all Free Zones and Financial Free Zones, such as the Dubai International Financial Centre (“DIFC”). 

 

Economic Substance for DIFC entities  

On 17th of December 2019, DIFC issued specific guidelines on ESR applicable to all DIFC entities including private companies, public companies, partnerships (LLP, LP and GP), foundations, non-profit organisations, and branches established in DIFC.


The ESR, which apply to financial years commencing from 1st of January 2019, further requires DIFC entities that undertake “Relevant Activities” to demonstrate” Economic Presence” in the UAE in relation to the activities they undertake. 

See Grant Thornton’s tax alert for further details here. 

 

How GT can assist: 

In this regard, our tax experts can provide support to all DIFC businesses with conducting:  

  • Economic Substance Impact Assessment for UAE entities  
  • Assistance in Filing Economic Substance notification 
  • Assistance in Filing Economic Substance Return/ Report with the DIFC

 

For further clarification and details regarding the above Tax Alert, please feel free to contact Steven Ireland, the Head of International Tax, and Amisha Anil, the Tax Assistant Manager.