Health Checklist for UAE Businesses and Way forward after European Union finance ministers agreed to remove the UAE from the bloc’s lists of countries deemed to be acting as tax havens as on 10 October 2019.
The UAE was included in the original EU blacklist in 2017 but was subsequently moved to the EU grey list on 23 Jan 2018 after committing to meet the standards required by the EU.
On 12 March 2019, the UAE was added back to EU blacklist for not making sufficient progress in implementing economic substance regulations.
Country by country Reporting
The UAE has implemented the Country-by-Country Reporting, Common Reporting Standard (‘CRS’) for the automatic exchange, among tax authorities, of financial account information of foreign tax residents by way of a Cabinet Resolution
Economic Substance Requirements
The 28-nation EU set up a “Blacklist” and a “Grey list” of tax havens in December 2017 after revelations of widespread avoidance schemes used by corporations and wealthy individuals to lower their tax bills. These lists are regularly reviewed to take account of overhauls or to add new jurisdictions.
EU and the OECD have introduced measures to tackle international tax avoidance. The key driver of these measures has been multi-national companies headquartered in more established and mature western tax jurisdictions that were perceived to be reducing their overall tax burden by artificially shifting profits from high tax jurisdictions to jurisdictions with a low rate or no tax rather than companies from countries in the Middle East.
Companies seeking to invest in and/or through the UAE and businesses operating in the UAE should review their level of economic substance in order to be compliant with the future substance requirements in the UAE.
Country-by-Country Reporting Applicability Checklist for Companies
Economic substance refers to a transaction that has a purpose besides the reduction of a tax liability. The concept is used in the examination of tax shelters to see if they are abusing the tax laws.
Economic Substance Requirements Applicability Checklist for Companies
Exemptions: Entities that are directly or indirectly owned by the UAE government (both federal and local) are specifically excluded from the Regulations; subject to condition that government’s shareholding interest must be at least 51% for the entity to fall outside the scope of the Economic Substance Regulations (article 3.2. and 4.2 of The Ministerial Decision).
Every Licensee that carries on a Relevant Activity and derives an income therefrom in the UAE, including a Free Zone or a Financial Free Zone, must meet the Economic Substance Test (article 3.1. and 4.1 of The Ministerial Decision)
Multinational groups should determine if, and to what extent, their entities’ current levels of substance in those jurisdictions are sufficient.
Disclaimer: This document is only for information purposes and should not be construed as an advice. It does not necessarily cover each aspect of the topic with which it deals. You should not act upon the contents of this document without receiving formal advice on your circumstances.
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