On 10 October 2019, the European Union (EU) agreed to remove the United Arab Emirates (UAE) from their list of non-cooperative tax jurisdictions (the EU blacklist). This followed from the introduction of the Economic Substance Regulations (ESR) in the UAE in March 2019, and more recently, the specific Guidance on the ESR (the Guidance) published by the UAE Ministry of Finance in September 2019.

The removal from the EU blacklist should give multinationals more comfort that their UAE establishments (including companies, branches and representative offices) can take advantage of the relevant double tax treaty in place, and further increase trust in the market and growth in investments in the UAE. Furthermore, other jurisdictions may follow suit and remove the UAE from their domestic list of tax havens or list of non-cooperative tax jurisdictions which should make it easier and more efficient for companies established in those countries to do business in the UAE.

As reported in our previous alert, companies carrying out relevant activities in the UAE are required to meet the minimal substance requirements and to conduct annual compliance reporting. Set out here are some of the specific guidelines under the newly issued Guidance on the interpretation of and compliance with the ESR.

Relevant Activities

Under the ESR, the relevant activities carried out by companies to generate income in the UAE, whether onshore or in the free zones including financial free zones, include:

  • Banking;
  • Insurance;
  • Investment fund management;
  • Leasing and finance;
  • Headquarters;
  • Shipping;
  • Intellectual property;
  • Holding company business; and
  • Distribution and service centers.

Guidance: If a company carries out a relevant activity, it should review the requirements applicable to such activity under the ESR. If it carries out more than one relevant activity, it should satisfy the Economic Substance Test for each activity.

To view the full alert, please click here or the Download Alert button below.

To speak to us in relation to any corporate structuring and tax issues in the UAE and Middle East, please feel free to contact one of the lawyers below.

Author

Omar Momany is a partner in Habib Al Mulla & Partners, a member firm of Baker & McKenzie International, and Head of the UAE Corporate/M&A practice. Omar focuses on public and private mergers and acquisitions, corporate restructurings, corporate governance, joint ventures, commercial matters and corporate/shareholders' disputes in the UAE and throughout the region. Omar has over 17 years' experience in the Middle East and has acted for local and regional corporates and financial institutions, governments and regulatory bodies, multinationals, family businesses and royal houses.

Author

Rony Eid is a counsel in Habib Al Mulla & Partners, a member firm of Baker & McKenzie International, based in Dubai. Rony has over 19 years' experience in the Middle East, including 10 years in the UAE. He is experienced in corporate and commercial transactions, foreign direct investment, mergers and acquisitions, corporate reorganizations, regulatory matters, local laws and litigation. Rony also advises on the incorporation and structuring of companies in the UAE including within the free zones.

Author

Reggie Mezu is a Senior Special Counsel in Baker McKenzie Habib Al Mulla, based in Dubai. He has practiced tax for nearly 30 years in the Middle East, Africa and Europe, including in the UAE for 15 years. Reggie regularly advises clients on tax planning, corporate structuring, cross-border transactions, double tax treaties, reform and development of fiscal frameworks, general advice, and most recently, the new value added tax (VAT) regime in the Gulf region.

Author

Bastiaan Moossdorff is a Senior VAT Adviser in Habib Al Mulla & Partners, a member firm of Baker & McKenzie International, based in Dubai. He specializes in indirect tax and has practiced indirect tax for more than 7 years in the Netherlands, the UK, the UAE and the KSA. Bastiaan has multi-jurisdictional and multi-disciplinary academic qualifications in law, accountancy and taxation.

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