In 2019, an
economic substance law was signed in the United Arab Emirates. It took effect in 2020. As a business owner about to launch your
company in Dubai, it is perfectly normal to have questions about this law.
In any case, if you are considering setting up a solid and sustainable business in Dubai, you should not be concerned. Instead, you should view this law as an opportunity. Thanks to this law, the United Arab Emirates is one of the few countries in the world to offer companies zero taxation while enabling them to establish genuine economic substance.
Which companies are covered by the economic substance law in the United Arab Emirates?
A closer look at this law shows that the consulting and trading sectors are primarily concerned. Here is the list of sectors that must prove their economic substance:
- Banking
- Insurance
- Fund management
- Finance and leasing
- Pure equity holding company
- Shipping
- Headquartering
- Intellectual property holding
- Distribution and Service centre business
Therefore, if
your company in Dubai invoices services or goods to a foreign company with which you are connected, you will have to comply with the regulations in force.
How can I tell whether my company has sufficient economic substance?
In principle, you agree to comply with the regulations. But you still need to know whether
your company in Dubai has sufficient economic substance. In reality, it is not very complicated. You need to meet 2 conditions:
- The company must be directed and managed in the United Arab Emirates
- The number of qualified employees, physical presence, and company expenditure must correspond to the level of activity carried out in the United Arab Emirates
What solutions are available if this is not the case?
Does your
company in Dubai not meet these 2 conditions? Do not worry, solutions are available. Here are the 2 main options currently available:
First, you should know that it is entirely possible to create substance for your company. For example, you can
rent an office in Dubai, hire staff, or even ask one of the managers to reside in the United Arab Emirates.
The other solution is simply to outsource the performance of your activity to a company established in the United Arab Emirates. To support you in implementing this solution, our firm has developed a comprehensive outsourcing package. Naturally, it meets all the requirements of the law. You will therefore be compliant if you choose this solution.
The importance of the economic substance report
The law makes it mandatory to submit
an economic substance report for your company to its registry. It must be prepared within 12 months following the company’s financial year-end.
This report is highly important because it enables the authorities to verify that a solution has been properly implemented within your company. In other words, it is proof that you are complying with the law.
If the registry determines that the economic substance conditions have not been met, the report will be shared with the relevant foreign authorities, namely those in the beneficiary’s country or the country of its headquarters. The company will also receive a fine: AED 50,000 in the first year and up to AED 300,000 the following year if nothing is done to rectify the situation.
Good to know: the report may also be shared with foreign tax authorities upon simple request.
Would you like to learn more about
the economic substance law in the United Arab Emirates ? First, we recommend that you read it to familiarize yourself with it. You can find the law on
this page.
Second, if you still have questions about your
company project in Dubai, the simplest option is to contact our firm. We can review everything with you and find the appropriate solutions to ensure that your company can be launched under the best possible conditions in the United Arab Emirates.
