ESR Amendment - What is Included in the Relevant Activities

Referring to

As per the Earlier Resolution

As per Amended Resolution

Lease Financing Business

Earlier according to the Ministry of Finance UAE, the lease finance business included the following points:

1. A lease Finance business included the Renting of Assets or any other equipment or good to a different entity for a consideration
2. If an entity is the owner of a Lease Finance Business as well as a Headquarter Business, the entity must provide a report which will consist of sufficient proof about substance dealt under both the businesses.  

According to the latest amendment, a Lease Finance Business will no longer consist of the part about renting or leasing the assets or equipment’s as this clause has been deleted from the scope.

If an entity is already engaged in a headquarter business, then the business is not required to provide the report which will consist of the proof about the substance dealt with.

Cash Pool arrangements are considered for a Lease Finance Business.

Intellectual Property (IP) Business

In order to be considered as a High-Risk Intellectual Property, if one of the two following conditions can be applied to the business:

1. The holder of the license does not carry out any R&D, Marketing, Distribution, or any other related activities as its Core Income Generating Activities.
2. The holder of the license does not Do any of the following-

1. Does not create an IP in an Intellectual Property Asset which is used to generate income for the business.
2. Provides the license of the Intellectual Property to one or more Connected Person or generates any income by the business activates of the connected person.
3. The intellectual property is either acquired from a connected person or acquired in consideration for funding R&D by any other person.

According to the amendments made the IP Licensee is the person or entity which conducts an IP Business.

Apart from this the licensee also needs to fulfill the following requirements:

1. The IP Asset is not created by the concerned entity
2. Has provided the license to one or more connected person or has sold the Intellectual Property to a Foreign Connected Person.
3. The entity has attained the IP Asset either from a Connected Person or from in consideration for funding R&D by any other person.

Holding Company

In the earlier resolution, anything about the dividend of the holding company was not explained.

In the amended resolution an as per the FAQs from the Ministry of Finance, the term ‘dividend’ has been explained in detail.

If a licensee holds a real estate asset and this asset is used for the purposes of a Holding Company, even then the licensee will not be prevented from carrying out a Holding Company business.

Distribution and Service Centre Business

Distribution Business included:

The Purchase of goods from a foreign group company

1. Storage or Import of similar goods to the United Arab Emirates
2. Sale of the above-mentioned goods to anyone in the United Arab Emirates

Service Centre Business included:

Services such as Consulting, Administration, or other required services are in connection with the business of the foreign company outside the United Arab Emirates.

Distribution Business Includes:

1. Purchase of the required goods from a foreign company

2. Sale or distribution of the above-mentioned goods

Service Centre Business includes:

Any services which include consulting, management, and any other required services are provided to the foreign company.