UAE Compliance Update
Over the past year, several key compliance regulations have been introduced across the UAE. See below a brief summary of these changes and how they may affect your business. Our expert team of corporate lawyers are ready to assist you in ensuring full compliance with these important changes as well as in taking advantage of the opportunities they present.
New Regulations Issued for DMCC
The DMCC (Dubai Multi Commodities Centre) has recently issued new regulations called the Companies Regulations 2020. As well as this, they have introduced new Licensing Rules, Employment Rules, Officers Rules, Health, Safety Environment and Community Regulations. These all came into effect as of 2nd January 2020. DMCC companies are required to ensure compliance with this suite of new regulations.
There are some key notable differences between the previous rules and these new regulations. The new regulations (i) removes minimum capital requirements (ii) provides the option to have different classes of shares (iii) allows the flexibility to make changes to the Articles of Association to reflect the shareholder requirements (iv) prescribes mandatory appointment of a company secretary (v) introduces “Officer Rules” to address the roles and responsibilities for directors, managers and secretaries; (vi) permits re-domiciliation of companies to and from the DMCC (vii) prescribes maintenance of company registers (viii) provides greater flexibility in conducting shareholder’s meetings (ix) prescribes latest standard Articles of Association to be adopted by existing companies in order to be aligned with the New Regulations (x) introduces the concept of voluntary suspension of a license (Dormancy) (xi) provides comprehensive provisions for regulating branches and issuance of an establishment certificate for new and existing branches and (xii) introduces different methods of winding up a company.
It is mandatory for all DMCC entities to comply with these regulations. They should amend their existing articles of association accordingly, as well as appoint a company secretary for those that do not have one currently. Also, they will need to prepare and maintain company registers.
Compliance under Economic Substance Regulations for freezones and for onshore
In 2019, BSA wrote about the Economic Substance Regulations as they apply to the UAE, see here - https://bsabh.com/economic-substance-rules/
In summary, these regulations brought in specific requirements whereby businesses are required to demonstrate that their actual economic activity in the UAE is sufficient to support that their incorporation in the UAE was ‘not driven solely to benefit from the privileged tax regime’.
Businesses that this applies to need to submit a notification to their ‘relevant regulatory authority from 1 January 2020 onwards, and prepare and submit to the same Regulatory Authority an economic substance declaration within 12 months from the end of their financial year (e.g. 31 December 2020 for entities with a financial year ending 31 December 2019). Failure by an entity to comply with the Regulations shall result in administrative penalties, spontaneous exchange of information with the Foreign Competent Authority and potential suspension, revocation or non-renewal of its registration.’
It is therefore increasingly important that companies comply with these regulations as deadlines and potential penalties loom ahead.
Country-by-Country Reporting (CbCR) compliance obligations for multinational companies based in or operating from the UAE
In April 2019, Country-by-Country Reporting (CbCR) was introduced in the United Arab Emirates via Cabinet Resolution No. 32 of 2019.
This CbC Reporting is in relation to Action 13 of the Base Erosion and Profit Shifting. This is an initiative led by the OECD and the G20 nations.
This initiative requires ‘large Multinational Groups of Entities (MNEs) to file a CbC Report that should provide a breakdown of the Multinational Group’s global revenue, profit before tax, income tax accrued and some other indicators of economic activities for each jurisdiction in which the MNE operates.
The purpose of CbC Reporting is to eliminate any gap in information between the taxpayers and tax administrations with regards to information on where the economic value is generated within the MNE Group and whether it matches where profits are allocated and taxes are paid on a global level.
According to the Resolution, CbCR requirements are applicable to ‘financial reporting years’ starting on or after January 1st 2019. Accordingly, for the financial reporting year starting on January 1st 2019, the CbC report must be submitted latest by December 31st 2020.’
Authored by Partner Rima Mrad
and Senior Associate Anand Singh