The UAE Cabinet has taken an essential step on 30th April, 2019, where the Cabinet of Ministers Resolution No. 31 of 2019 has been released, which stands as a milestone for the UAE Taxation policy and can be considered as an essential step when it comes to global alignment regarding the Economic Substance (ES) in the UAE with Organization for Economic Cooperation and Development’s (OECD) Base Erosion and Profit Sharing (BEPS) directives. This move has got relevant impact on the business activities when dealing with the economic front. This guide will give you a complete idea on it.
What is Economic Substance Rule?
Introduced by the tax haven countries, the economic substance rules stand as guidelines issued by the EU as well as OECD. These rules get implemented to all legal entities that stand as residents for the tax purpose. Since the implementation of these rules has come into effect for the United Arab Emirates on April 30th, 2019, there will be subsequent changes in the business entities.
Eligibility Criteria to Implement Economic Substance Rules
There are specific requirements which need to be met by the business entities to apply the regulations. Some of the core rules are stated below:
- The business entities must conduct income-generating activities in the premises
- The entity should be directed and managed in UAE
- There should be an adequate number of full-time employees in the UAE
- A sufficient amount of expenditure needs to occur in the operating activities of the business
- The company must have an appropriate amount of physical assets in the UAE
- Additional requirements get applied if the business entity deals with high-end IP related services
