The UAE has recently released the Cabinet of Ministers Resolution n. 31/2019, and a new way for UAE-based companies to establish substance can do so by using this option.
Companies based in the United Arab Emirates who are performing any of the specified relevant activities for the purpose of the ES regulations would require to prove that the relevant CIGA’s have been undertaken in the UAE. The pre-conditions for the CIGA Test differ depending on the company’s individual activity.
A list of common company activities that fall within the scope as per UAE legislation are listed below, and what core income generating activities that are fully accepted. The UAE ES regulations permit that CIGAs can be delegated to a corporate service provider located in the UAE, however that’s subject to thorough supervision by the business or entity. Though, the economic substance of the service providers would not be counted multiple times by various entities when indicating their own substance in the UAE.
Pure Holding Companies who completely earn dividends and capital gains income are put under lighter economic substance scrutiny and thus a reduced test is applied to check:
(i) Their compliance regarding the submission of documents, various records and information to the applicable UAE Regulatory Authority.
(ii) If they have the required number of employees and if they have premises for holding and conducting the business.
In case the Holding Company is earning extra relevant activity income other than dividends and capital gains; for example management fees or service charges etc, then the standard three-level ES Test would have to be taken for any additional activities carried out.
Please note that the regulation does not add any substance threshold, so if the guidance gets some additional clarity on this, any extra income earned by the holding company would have to necessarily meet the ES regulations.
All business-related activities deriving income from dividends or capital gains received from equity interest.
It is important to note that for the purpose of the ES regulations, the applicable activities of Distribution and Service Centre and Intellectual Property related transactions are only included in legitimate CIGA Activities with international companies and entities only. Therefore, regular commercial business for any such activities carried out with non-related entities will not be covered by the new regulations.