Deadline to file notification - 30th June 2020
With respect to Economic Substance Regulations, the Central Bank of the UAE has recently announced a notification filing update to be carried out through the Central Bank Services Portal.
Following the recent update from the Central Bank of the UAE, the notification deadline for entities with a banking license issued by the Central Bank of the UAE is 30th of June 2020.
Return/ Report Deadline – 31st of December 2020
- Return/Report filing requirement applies to entities with a banking license issued by the Central Bank of the UAE that undertake a Relevant Activity e.g. Bank Business
- Entities with a banking license issued by the Central Bank of the UAE that undertook a Relevant Activity during the financial year ended 31st of 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 banking entities
In order to meet the Economic Substance Test, banking entities need to demonstrate all three of the following conditions:
- Adequate employees, physical assets and 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 analyse 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 Central Bank of the UAE, 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 penalties ranging from AED10,000 to AED50,000. 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, through Cabinet Resolution No. 31.
Economic Substance for Banks operating in the UAE
On 23rd of June 2020, the Central Bank of the UAE issued specific guidelines (Notice No. 2888.2020) on ESR applicable to all Banks and other Financial Institutions operating in the UAE.
The ESR, which apply to financial years commencing from 1st of January 2019, further requires Banks and other Financial Institutions that undertake “Relevant Activities” to demonstrate” Economic Presence” in the UAE in relation to the activities they undertake.
How GT can help
In this regard, our tax experts can provide support to all Banks and other Financial Institutions operating in the UAE with conducting:
- Economic Substance Impact Assessment
- Assistance in filing Economic Substance notification
- Assistance in filing Economic Substance Return/ Report with the Central Bank of the UAE