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International Restructuring Newswire
Welcome to the Q2 2025 edition of the Norton Rose Fulbright International Restructuring Newswire.
Middle East | Publication | July 2019
On April 30 2019, the UAE Cabinet issued Cabinet of Ministers Resolution No. 31 of 2019 concerning Economic Substance Regulations in the UAE (the Regulations), requiring all in-scope UAE entities which conduct certain activities (Relevant Activities) (detailed below) to have demonstrable economic substance in the UAE, effective immediately.
The introduction of the Regulations follows the UAE’s firm commitment to comply with the EU requirements in order to be removed from the EU’s list of “non-cooperative” tax jurisdictions and illustrates the UAE’s ongoing efforts to reach the highest standards on taxation including the OECD’s requirements.
The Regulations apply to all UAE onshore and free zone companies (including in the financial free zones) that carry on and generate income from one of the “Relevant Activities” listed below (Relevant Entities)1:
The Relevant Entities must satisfy the following criteria to meet the Economic Substance Test :
There are certain regulations in respect of holding companies whose income and profits are derived only from their equity investments. Additional requirements apply if an entity carries out “high risk IP related activities”.
Each Relevant Entity must report specified information on its ‘Relevant Activities’ annually to the authority which has issued its trade license to demonstrate that it satisfies the economic substance requirements (this includes, for example, information on the relevant activities such as nature and amount of revenue, expenses, place of business and number of employees with qualifications). Existing entities will have to comply from 20 April 2019 onwards, with the first return due in 2020. New entities must comply with the Regulations upon receipt of their trade licences, with the first return due in 2002 (or later).
Failure to meet the economic substance test and/or to provide information (or providing inaccurate information) results in significant financial penalties, and ultimately, a deregistration. Additionally, the Regulations provide that the UAE authorities may exchange information about non-compliant UAE-registered companies with the tax authorities in the states where their parent companies and UBO’s are resident.
Because the Regulations are of a high-level nature only, it is expected that supplemental regulations or decisions will be issued in due course to set out the detailed application of the Regulations, the reporting requirements and how it will be implemented.
Entities which are either directly or indirectly owned by the UAE Government (both federal and local) are specifically excluded from the ambit of the Regulations.
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Welcome to the Q2 2025 edition of the Norton Rose Fulbright International Restructuring Newswire.
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Another compliance deadline is approaching under the federal Pay Equity Act – federally regulated employers are required to file an annual statement with the Office of the Pay Equity Commissioner on or before June 30, 2025, if they posted a pay equity plan in the previous year.
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