In a recent webinar organized by the Dubai Chamber, in collaboration with Al Tamimi & Company, experts highlighted the latest developments and provided guidance with respect to the economic substance regime and compliance requirements. The webinar, titled ‘Key Aspects of Economic Substance Regulations’, noted that the UAE has issued the Economic Substance Regulations in April 2019 and followed them with an updated guidance on relevant activities by the Ministry of Finance to help businesses to demonstrate economic presence in the UAE.

The UAE adopted new economic substance regulations in Cabinet Resolution No. 31 of 2019. These regulations provide that a company engaged in one of several specified sectors must have sufficient economic substance in the territory to access the territory’s tax regime. The changes were in response to pressure from the EU on several territories, following recommendations from its EU Code of Conduct Group, and apply for financial years starting on or after January 1, 2019. The key activities identified by the European Commission Code of Conduct Group are banking, insurance, fund management, financing and leasing, shipping, intellectual property, collective investment vehicles, and holding companies that generate income from any of these key activities.

Shiraz Khan, head of Taxation at Al Tamimi & Company, said that tax is a key revenue generation for many countries that don’t have an abundance of natural resources. “These countries generally rely on taxes to fund their public expenditure.”

One of the biggest concerns during the 2008 downturn, he said, revolved around tax evasion. “Many international companies around the world, with the advent of globalization, were essentially operating in multiple countries and moving money from high tax jurisdictions into low tax jurisdictions and therefore paying less tax as a result.”