Does Your Business Fall Under Regulatory Compliance? Find Out! 🔍
While the regulatory authorities in the UAE, such as the Ministry of Finance and the Federal Tax Authority (FTA), provide guidelines and information regarding the ESR, it is ultimately the responsibility of businesses to determine whether they are subject to the regulations.
The determination of ESR applicability depends on various factors, including the nature of the business activities conducted within the UAE. If your business engages in any of the “Relevant Activities” outlined in the ESR, it is likely to fall under the regulations’ purview.
It is essential for businesses to assess their activities carefully and evaluate whether they fall within the scope of any of these relevant activities. Seeking professional advice from legal or tax experts can greatly assist in determining your ESR obligations.
Businesses should also note that regulatory authorities may perform assessments and audits to ensure compliance with the ESR. Non-compliance with the regulations can result in penalties, including fines and potential reputational damage.
Taking a proactive approach to understanding and meeting your ESR obligations is crucial. By conducting an internal assessment of your activities and seeking professional guidance, you can ensure compliance and avoid any potential penalties.
Conclusion:
When it comes to Economic Substance Regulations (ESR) in the UAE, businesses are responsible for determining their own obligations under the regulations. Regulatory authorities provide guidelines and information regarding the ESR, but it is ultimately up to businesses to assess their activities and evaluate whether they fall within the scope of the relevant activities listed in the regulations.
To ensure compliance with the ESR, businesses should conduct internal assessments, seek professional advice, and take proactive steps to meet their obligations. Staying informed about updates and developments in the ESR landscape is also crucial for ongoing compliance.
Disclaimer: The information provided in this article is for general informational purposes only and should not be considered legal or professional advice.
The answer to whether branches are subject to the ESR depends on certain factors. It’s crucial to note that ESR applies to entities that engage in “Relevant Activities” within the UAE. These activities include:
Banking Business
Insurance Business
Investment Fund Management Business
Lease-Finance Business
Headquarters Business
Shipping Business
Holding Company Business
Intellectual Property Business
Distribution and Service Centre Business
If a branch conducts any of the relevant activities mentioned above, it falls under the purview of the ESR. However, if the branch solely performs administrative or support functions and does not engage in any relevant activity, it may be exempted from the ESR requirements.
Where do I report the details of my branch?
If your branch is subject to the ESR, it is crucial to understand the reporting obligations associated with it. The Regulatory Authority in the UAE, the Ministry of Finance, has designated the Federal Tax Authority (FTA) as the entity responsible for collecting and administering ESR-related information.
When reporting the details of your branch, you will need to provide the following information:
Entity Information: Include details such as the legal name, trade name, and trade license of the branch.
Activities: Clearly specify the nature of activities carried out by the branch, ensuring they align with the relevant activities listed under the ESR.
Financial Information: Provide financial statements and relevant financial data for the branch.
Employees: Disclose the number of employees engaged in the branch’s activities.
Physical Assets: Report the value and location of physical assets used by the branch in its operations.
Core Income-Generating Activities (CIGAs): Identify and describe the CIGAs performed by the branch in the UAE.
Confirmation: Declare that the branch has met the Economic Substance Test and attach any supporting documentation if required.
Conclusion:
Compliance with the Economic Substance Regulations is crucial for businesses operating branches in the UAE. Determining whether your branch falls under the scope of ESR is essential, as it will dictate your reporting obligations. If your branch engages in relevant activities, it must report the necessary details to the Federal Tax Authority (FTA) in accordance with the regulations.
We hope this article has provided you with valuable insights into the treatment of branches under the ESR and the reporting process. Stay tuned for our next blog, where we will explore another relevant topic related to Economic Substance Regulations in the UAE.
Disclaimer: The information provided in this article is for general informational purposes only and should not be considered legal or professional advice.
How to determine if your business is subject to Economic Substance Regulation (ESR) requirements in the UAE?
As the deadline for Economic Substance Regulation (ESR) compliance approaches in the UAE, businesses must ensure they understand if they fall under the scope of the regulation. ESR requires businesses in certain sectors to demonstrate economic substance in the UAE, and failure to comply could result in significant penalties. In this article, we will explain how to determine if your business is subject to ESR requirements in the UAE.
Determine if your business falls within the scope of ESR: ESR applies to businesses that undertake “relevant activities,” including banking, insurance, intellectual property, shipping, and holding company activities. Review your business activities to determine if they fall under any of the relevant activities outlined in the regulation.
Assess the level of activity conducted in the UAE: If your business engages in relevant activities, the next step is to determine if there is sufficient economic substance in the UAE. This involves assessing the level of activity, assets, and employees based in the UAE.
Identify if your business is a “Licensee”: ESR requirements apply to businesses that are licensed in the UAE, including free zone entities. If your business holds a license to operate in the UAE, it is likely subject to ESR requirements.
Determine if your business is exempt: Certain entities are exempt from ESR requirements, including entities that are tax-resident outside the UAE, and those that are wholly owned by UAE residents. Review the regulation to determine if your business qualifies for an exemption.
In conclusion, determining if your business is subject to ESR requirements in the UAE requires a thorough review of the regulation, your business activities, and presence in the UAE. If you are unsure about whether your business is compliant with ESR regulations, seek advice from a qualified professional to avoid penalties and ensure compliance before the June deadline.
Disclaimer: The information provided in this article is for general informational purposes only and should not be considered legal or professional advice.
The Economic Substance Regulation (ESR) is a set of rules introduced by the UAE government to align with the global standards of tax transparency and combat tax evasion. Under ESR, businesses in the UAE must demonstrate that they have sufficient economic activity and presence in the country to justify the income they earn and the taxes they pay.
ESR applies to businesses that conduct specific activities, such as banking, insurance, investment management, and intellectual property. The regulation impacts all companies in the UAE, including those in free zones and offshore jurisdictions.
Failure to comply with ESR requirements can result in hefty penalties, including fines, suspension of licenses, and reputational damage.
To ensure compliance with ESR, businesses in the UAE must maintain accurate records and document their economic substance through various criteria, including:
Physical presence in the UAE, such as offices, employees, and assets
Active management of relevant activities within the UAE
Adequate operating expenditures in the UAE
Qualified employees and equipment in the UAE
Appropriate levels of revenue generated in the UAE
As the June deadline approaches, businesses must take proactive steps to ensure they meet the ESR requirements. This includes reviewing their business operations, documenting their economic substance, and reporting to the relevant authorities.
In summary, compliance with ESR is a crucial aspect of doing business in the UAE, and failure to comply can result in significant consequences. By taking proactive steps to ensure compliance, businesses can avoid penalties and maintain their reputation in the market.
Expanding to Al Reem and Paving the Way as a Leading Financial District!
An important milestone for Abu Dhabi and ADGM was reached on May 8th, as the International Financial District grew to incorporate both Al Maryah and Al Reem islands, with a total area of 1,438 hectares. This expansion made it one of the biggest financial districts in the world.
Picture credits to ADGM.
The fastest-growing IFC in the area is ADGM, and this growth results from greater demand from local and international businesses who have chosen Abu Dhabi as their preferred place to live and work. Businesses in the financial district will profit from being subject to the English common law of the financial freezone, having the chance to recruit top personnel, and having more accessible access to investment and business possibilities by being a part of the dynamic community of ADGM. ADGM will keep assisting the community and improving its offerings, and we’re excited to celebrate the various establishments, amenities, and facilities for the high quality of life that the two islands have to offer. Welcome to ADGM, Al Reem Island companies, retailers, institutions, and people.
Are you considering setting up your business in ADGM’s rapidly expanding financial district? Let MS, guide you through the complex process of business incorporation in ADGM. With our extensive experience in the industry, we can provide you with expert guidance and support tailored to meet your specific needs and goals. We’ll advise you on company structure and governance, ensure compliance with local regulations and laws, and help you set up for long-term success in ADGM’s thriving business ecosystem. Beyond incorporation, we offer a range of essential business services, including accounting, taxation, and corporate finance. Our deep expertise and knowledge of the local market will help you make informed decisions and achieve your business objectives more efficiently and effectively.
WHY MS
We are an Energetic, Passionate, and curious mix of technologists, Lawyers, Problem Solvers, and Business builders with diverse expertise and background.
We believe our success comes from giving our clients the support to become the best they can be.
We value our clients and are committed to adding value to all our engagements without compromise.
We strive to find solutions to the challenges as we are known to have mastered the“magic of getting things done.”
We are responsive and believe in maintaining an open line of communication with our clients.
Unclear about ADGM-Al Reem expansion? Check out our FAQ here.
ADGM is an international financial centre, in the form of a Financial Free Zone established in the Emirate of Abu Dhabi, able to develop its own laws and regulations based on the application of English common law: there are some exceptions, however, where the laws of the UAE are applicable in ADGM, most notably the criminal law. You can find out more about ADGM by visiting the website www.adgm.com.
2. What does ADGM jurisdiction expansion mean?
Al Reem Island was governed by UAE federal and Abu Dhabi local laws. From the 24 April 202 when Cabinet Resolution No. (4) of 202 was issued expanding the jurisdiction of ADGM to Al Reem Island, ADGM’s legal and regulatory frameworks have been in force for Al Reem Island. However, ADGM and its authorities are currently working with key government stakeholders and other local authorities to ensure that there is a smooth transition to allow all establishments and real estate on Al Reem Island to meet the relevant requirements of ADGM’s legal and regulatory framework during or by the end of the transitional arrangements. It should be noted that federal criminal law will continue to apply to Al Reem Island.
3. When will this be effective?
ADGM’s legal framework became effective for Al Reem Island on 24 April 2023 when Cabinet Resolution No. (4) of 2023 was issued. ADGM and its authorities are currently working with key government stakeholders and other local authorities to finalize the necessary transitional arrangements that cover the activities of all entities presently operating on Al Reem Island, including those engaged in the financial services industry. The relevant ADGM authority will contact the Al Reem island community with more details on the transition process in due course.
4. How does it impact you?
Although the change to ADGM’s geographical jurisdiction took effect on 24 April 2023, in the interim, establishments and real estate on Al Reem Island can continue to operate and carry on business as before. However, ADGM and its authorities are currently working with key government stakeholders and other local authorities to finalize the necessary transitional arrangements that cover the activities of all entities presently operating on Al Reem Island, including those engaged in financial services.
During the transitional arrangements, establishments operating in Al Reem Island should consider whether they wish to apply for the appropriate license, registration, and authorization to remain on Al Reem Island within ADGM jurisdiction or make arrangements to relocate outside of ADGM to continue being governed by the UAE federal and Abu Dhabi local legal and regulatory frameworks, that they were subject to prior to the expansion.
5. What will happen to your applications currently being processed by a federal or a local authority?
Processing of all applications will continue without change until further notice.
6. You have just renewed your residential tenancy with your landlord and registered Tawtheeq in Al Reem Island. What happens to you?
Processing and registration of all residential tenancies including the processing of other services related to real estate will continue without change and with the relevant government authority until further notice. Your current DED license is expiring soon.
7. What are your options?
Renew it with the Department of Economic Development Abu Dhabi until further notice.
8. What happens to your current employment visa?
Your visa will remain valid as usual until further notice.
9. Are you looking to obtain building permits, infrastructure services, planning services, or any other municipality-related services?
Reach out to the Department of Municipality Abu Dhabi for all such services until further notice.
10. You are already an ADGM establishment based on Al Maryah Island?
It is business as usual for all existing ADGM establishments.
Starting from 1st June 2023, the United Arab Emirates (UAE) will be implementing a corporate tax regime for the first time in its history. Under the UAE Corporate Tax Law, all companies conducting business within the UAE will be subject to corporate taxation. The tax rate will be set at a flat rate of 9%, and companies will be required to submit annual tax returns to the Federal Tax Authority (FTA). The introduction of corporate tax in the UAE is a significant development for the country’s economy, and businesses operating in the UAE need to prepare for the upcoming changes.
WHAT IS CORPORATE TAX
Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses. Generally, such taxes are computed on the accounting net profit/income of a business, after making adjustments for certain items which will be specified under the UAE Corporate Tax law.
The UAE Corporate Tax regime will become effective for financial years starting on or after 1 June 2023.
It is clarified that when a business has a calendar year as its financial year. then the Corporate Tax shall be effective from 1 January 2024.
Corporate Tax Rate in UAE will be applicable at the following rates:
Income
Rate
Taxable income not exceeding AED 375,000.Qualifying Income of a Qualifying Free Zone Person*
0%
Taxable income exceeding AED 375,000.Non-Qualifying Income of a Qualifying Free Zone Person
9%
*It is not clear what will be considered as ‘Qualifying Income’, but further clarity is expected in a subsequent Cabinet Decision.
For example, if the Company earns a taxable profit of AED 400,000 in an FY, The Corporate Tax liability will be calculated as follows:
Taxable income of AED 0 – AED 375,000 at 0% = AED 0
The portion of taxable income exceeding AED 375.000 (i.e., AED 400.000 – AED 375.000 = AED 25,000) at 9% = AED 2,250
What is Taxable Income as per Corporate Tax?
To reduce complexity and compliance costs, the UAE CT regime determines a company’s Taxable Income based on its accounting net profit (or loss) as disclosed in its financial statements. This requires that the financial statements be prepared according to UAE accounting standards. Businesses in the UAE commonly use International Financial Reporting Standards (IFRS) because there are no generally accepted accounting principles (GAAPs) in the UAE.
A Taxable person is someone who is subject to corporate tax. What is the tax base of a taxable person?
Resident Person
Tax base
An entity that is incorporated in the UAE. (Including a Free Zone entity)
Worldwide Income
A foreign entity that is effectively managed and controlled in the UAE
Worldwide Income
A natural Person/individual who conducts a Business or Business Activity in the UAE
Worldwide Income
Non-resident Person
Tax base
Has a permanent establishment (‘PE’) in the UAE
Taxable income attributable to the PE
Derives UAE Sourced Income
The UAE sourced income not attributable to the PE
Has a Nexus in the UAE
Taxable income attributable to the Nexus
Will any kind of business be subject to Corporate Tax in UAE?
The tax will be applicable in all businesses including the free zones except:
Government Entity
Government Controlled Entity
Persons engaged in an Extractive Business
Persons engaged in Non-Extractive Natural Resource Business
Qualifying Public Benefit Entity
Qualifying Investment Funds
Pension fund and Social Security fund (subject to regulatory oversight of the competent authority)
Any other Person as may be determined in a decision issued by the Cabinet.
How do you know if you qualify for a Freezone?
In order to qualify for the 0% CT rate, QFZP (Qualifying Free Zone Person) must meet all of the following conditions:
It must be a Free Zone Person (i.e., a juridical person incorporated, established, or otherwise registered in a Free Zone, incl. branches).
Maintain adequate substance in the UAE.
Derive Qualifying Income (to be defined in a Cabinet Decision).
Not have made an election to be subject to the standard UAE CT regime.
Comply with all transfer pricing rules and documentation requirements; and
Meet any other conditions as prescribed by the MoF.
Corporate Tax Training
MS Group has extensive training experience in every new Regulation that has been introduced in the UAE. particularly in the area of VAT. AML. IFRS, etc.
We are passionate about developing people to their true potential. We are available to conduct a tailor-made awareness program to enhance the skill set of in-house teams and senior management.
We can customize our training plan to cover all or either of the following areas:
Provide overall awareness about Corporate Tax Regulations.
Awareness about deductible expenses/disallowances to be taken care of while computing taxable Income.
Corporate Tax Compliance
Dynamic economic development, globalization, business pressures, and continuous legislation amendments/developments all force organizations to consider a new approach to the process of tax accounting, preparation of tax reporting documentation, and cooperation with the tax authorities.
We assist organizations to improve management effectiveness, correlating tax decisions made in one country with the business imperatives of the overall organization.
Our Corporate Tax Compliance Team assists organizations in meeting tax compliance requirements, by offering a wide range of services that include:
General Compliance Service
Corporate Tax Registration
Calculation of tax payables
Preparation of Corporate Tax returns and other tax reporting documents
Review of the tax return prepared by the organization.
Assistance with correspondence with the tax authorities, in case of any queries raised by the authorities.
Coordinating with authorities to settle tax disputes if any.
Corporate Tax Implementation
In the increasingly complex areas of Corporate Tax reporting, tax authority compliance, and tax planning – in-house tax departments are often challenged to meet constantly changing requirements.
Our experienced professionals having industry experience and experience in Corporate Tax can supplement the professionals of your organization to ensure an error-free transition to the newly introduced Corporate Tax in the UAE.
Our reputation for expertise, efficiency, attention to detail, and superior service is recognized by both our clients and peers.
Whether your organization is an emerging operation or a large, established business, our team of professionals will apply their years of tax experience and resources to help you identify areas of risk, and offer solutions that mitigate financial risk and tax compliance exposures.
Our areas of expertise include:
Conduct an impact assessment of the legal structure of the organization and the group at large.
Conduct impact analysis of the bottom line and profits after tax.
Review whether the financial year followed by the organization requires any modification / adopts a uniform financial year.
Review Internationally Accepted Accounting Standards have been followed while making existing financial Statements, in all aspects.
Review whether adequate resources are available to undertake tax compliance functions.
Review whether the processes adopted by the organization to ensure adherence and compliance with corporate tax are adequate.
We offer a wide range of services that include general compliance, the introduction of tax, finance, and accounting services, and global coordination and management of tax accounting projects.
At MS, we understand the complexity of tax laws and the challenges businesses face when it comes to tax compliance. As a leading tax and accounting consultancy in the UAE, we are well-positioned to help businesses navigate the new corporate tax regime. Our team of experienced tax consultants can provide tailored advice on corporate tax planning and compliance, ensuring that our clients remain fully compliant with the latest tax laws and regulations. Contact us today to find out how we can help you with your corporate tax requirements.
A natural person is regarded as a UAE Tax Resident if they meet the following criteria:
1) resides in the UAE regularly or as their primary residence and where they have their primary financial and personal interests.
2) was physically present in the UAE for 183 days or more over the course of a single 12-month period: or
3) was physically present in the UAE for 90 days or more in a 12-month period that followed, and the person is a national of the UAE, has a valid residency permit in the UAE, or is a citizen of any GCC Member State.
Where (i) he or she maintains a permanent address in the UAE; or (ii) he or she works or operates a business there.
What does the new UAE Tax Resident definition mean for people?
➝ Individuals will not be subject to personal income tax in the UAE as a result of the new UAE tax residency criteria being implemented.
➝ The personal income of individuals, whether from employment or other sources, is not taxed in the UAE. As a result, if a person satisfies the requirements listed above to be classified as a UAE Tax Resident, they would ordinarily not be subject to taxation on their personal income in the UAE.
➝ According to bilateral tax agreements the UAE has signed with other territories, many of which refer to UAE domestic laws for determining whether a person is a resident of the UAE for purposes of the treaty, the new Tax Resident definition provides individuals with additional clarity regarding their UAE tax residency position.
➝ The Decision does not change the fact that, for purposes of determining whether a person’s business income is subject to UAE taxation, the UAE Corporate Tax Law will treat foreign natural persons conducting business in the UAE as “Resident Persons” (as defined in the Corporate Tax Law). Whether or not the natural person is regarded as a tax resident in the UAE for other tax purposes has no bearing on this corporate tax law concept.
➝ The new definition of a juridical person generally refers to an entity that was established or otherwise recognized in accordance with UAE law or the laws of another country and that has a separate legal personality from its creators, owners, and directors. Limited liability companies, foundations, public or private joint stock companies, and other entity types that have distinct legal personalities under the relevant UAE mainland legislation or the rules of a free zone are examples of UAE juridical persons.
A Guide for Opening a Bank Account in Dubai, UAE for SME
Dubai is known for its bustling business scene and is home to numerous Small and Medium Enterprises (SMEs). However, opening a bank account for an SME in Dubai, UAE can be a challenging task. The process can be lengthy, and there are several requirements that businesses need to fulfill to open a bank account in the city. In this blog, we will explore the challenges that SMEs face when opening a bank account in Dubai and how to overcome them.
Challenge 1: Meeting the Requirements
One of the biggest challenges that SMEs face when opening a bank account in Dubai is meeting the requirements. To open a bank account in Dubai, UAE – businesses need to provide several documents, including business registration documents, shareholder certificates, and proof of address. SMEs may also need to provide financial statements, tax certificates, and other documents to meet the bank’s compliance requirements.
Solution: SMEs need to ensure that they have all the necessary documents before applying for a bank account. They can also seek the help of professional services firms that specialize in assisting SMEs with the process. These firms can help SMEs to prepare the required documents and ensure that they meet the bank’s compliance requirements.
Challenge 2: Limited Banking Options
Another challenge that SMEs face when opening a bank account in Dubai, UAE is limited banking options. Many banks in Dubai only cater to large businesses and corporations, making it difficult for SMEs to find a suitable banking partner. The banks that do offer services to SMEs may have strict eligibility criteria or charge high fees.
Solution: SMEs need to do their research and identify banks that offer services to SMEs. They can also consider alternative banking options such as digital banks or offshore banks that may offer more flexible and affordable services. It is also essential to compare the fees and charges of different banks to find the most cost-effective option.
Challenge 3: Language Barrier
Dubai is a multicultural city, and English is widely spoken in the business community. However, many of the official documents required to open a bank account may be in Arabic, which can be a challenge for SMEs that do not speak the language.
Solution: SMEs can seek the help of professional translators or translation services to translate the required documents into English. They can also consider hiring a bilingual employee who can assist with the translation process and communicate with the bank.
Challenge 4: Time-consuming Process
The process of opening a bank account in Dubai can be lengthy and time-consuming. SMEs may need to visit the bank multiple times to complete the process, and the bank may require additional documents or information, further delaying the process.
Solution: SMEs need to plan ahead and give themselves enough time to complete the process. They can also consider using digital banking services, which may offer a more streamlined and efficient process.
In conclusion, opening a bank account in Dubai for SMEs can be a challenging process. However, by understanding the requirements and challenges and seeking the right help, SMEs can overcome these challenges and find a suitable banking partner that meets their needs.
At MS Finance and Business Consulting, we understand the challenges that SMEs face when opening a bank account in Dubai. Our team of experienced finance and business consultants has helped numerous SMEs navigate the banking process and find suitable banking partners. We provide a comprehensive range of services, including assistance with document preparation, compliance requirements, and identifying the most cost-effective banking options. Our team also provides additional services such as financial planning, accounting, and bookkeeping, which can help SMEs manage their finances effectively. By working with MS Finance and Business Consulting, SMEs can be assured that their banking needs are met efficiently and effectively, allowing them to focus on growing their business.
The Benefits of Hiring an Accounting and Bookkeeping Company in Dubai 2023
Are you a business owner in Dubai struggling with managing your bookkeeping and accounting tasks? As a business owner, your focus should be on your clients and generating leads. However, bookkeeping and accounting tasks can be time-consuming and take away from the time you could be spending on your business. This is where an accounting and bookkeeping company in Dubai can come in handy.
Maintain Clients: By outsourcing your accounting and bookkeeping tasks, you can focus more on maintaining your current clients and generating new leads. The time spent on bookkeeping tasks can take away from your business and managing operations, which can result in your clients seeking business elsewhere.
No Stress Regarding Errors: Attempting to handle accounting and bookkeeping tasks on your own or hiring underqualified employees can result in costly errors. By outsourcing these tasks to professionals with experience, you can reduce the risk of costly mistakes.
Quality Enhancement: By outsourcing bookkeeping and accounting tasks, you can focus on providing quality work and services to your clients. This increased quality can result in more clients returning to your business, encouraging sustainability.
Increase Your Business Value: By focusing on your clients and generating leads, your profits will increase, resulting in your business value increasing. High business value attracts more customers and leads, continuing a trend of increased profits.
Reducing Your Workload: By outsourcing bookkeeping and accounting tasks, you can reduce your workload, which can result in better health and personal relationships.
Encourage a Positive Workplace: By reducing unnecessary stress caused by bookkeeping and accounting tasks, you can create a positive workplace environment that promotes productivity and better customer service.
Know Your Business Cycles: Outsourcing bookkeeping and accounting tasks can be cost-effective and reduce the need for additional employees, resulting in cost savings.
At MS, we understand the importance of accurate and timely financial information. Our qualified chartered accountants provide complete accounting and bookkeeping services tailored to your needs and budget. By outsourcing your bookkeeping and accounting tasks to MS, you can focus on your business and drive it forward.
In conclusion, an accounting and bookkeeping company in Dubai can provide numerous benefits to your business, including increased productivity, reduced stress, and cost savings. Contact MS for customized solutions to your bookkeeping and accounting needs.
