What Are the Relevant Activities That Fall Under Economic Substance Regulations in the UAE?

 


The UAE has newly introduced Economic Substance Regulations, and accordingly, all UAE organizations that might be dependent upon these regulations should be set up to make a move and ensure compliance. Any entity licensed in the UAE to carry out a 'relevant activity' regardless of whether in a free zone or onshore & including in a financial free zone is needed to comply with the Economic Substance Rules. The relevant activities are:

  • Banking businesses
  • Insurance businesses
  • Investment fund management businesses
  • Lease-finance businesses
  • Shipping businesses
  • Headquarters businesses
  • Holding company businesses
  • Intellectual property businesses &
  • Distribution and service center businesses

All businesses in the UAE are expected to use the substance over form, approach to determine whether or not they embrace a Relevant Activity and, accordingly, are inside the extent of the Regulations. This would require the UAE business to not just consider the activities expressed under their business registration certificate or commercial license but also to evaluate the activities are done during a financial period. It isn't needed that a UAE business is effectively occupied with any of the above business categories for it to be considered as carrying on a Relevant Activity. Licensees can hold more than one Relevant Activity during a similar monetary period. This would require the Licensee to show economic substance regarding each Relevant Activity, except if the other Relevant Activities are subordinate to a principal Relevant Activity. In specific cases, the Licensee can merge the auxiliary Relevant Activities under the principal Relevant Activity to avoid duplicate reporting.

Relevant Activities & Core Income-Generating Activities

Based on the Economic Substance Regulations Relevant Activities Guide, businesses in UAE with the following relevant activities should review & comply with the terms of the ESR.

Core Income-Generating Activities of a Banking Business

  • Raising funds, managing risk including credit, currency and interest risk
  • Taking hedging positions.
  • Providing loans, credit, or other financial services to customers.
  • Managing capital and preparing reports to investors or any government authority with functions relating to the supervision or regulation of such business.

Core Income-Generating Activities of an Insurance Business

  • Predicting and calculating risk.
  • Insuring or re-insuring against risk and providing Insurance Business services to clients.
  • Underwriting insurance and reinsurance.

Core Income-Generating Activities of an Investment Fund Management Business

  • Taking decisions on the holding and selling of investments.
  • Calculating risk and reserves.
  • Taking decisions on currency or interest fluctuations and hedging positions.
  • Preparing reports to investors or any government the authority with functions relating to the supervision or regulation of such business.

 Core Income-Generating Activities of a Lease-Finance Business

  • Agreeing with funding terms.
  • Identifying and acquiring assets to be leased (in the case of leasing).
  • Setting the terms and duration of any financing or leasing.
  • Monitoring and revising any agreements.
  • Managing any risks.

Core Income-Generating Activities of a Headquarter Business

  • Taking relevant management decisions.
  • Incurring operating expenditures on behalf of the group entities.
  • Coordinating group activities.

Core Income-Generating Activities of a Shipping Business

  • Managing crew (including hiring, paying, and overseeing crewmembers).
  • Overhauling and maintaining ships.
  • Overseeing and tracking shipping.
  • Determining what goods to order and when to deliver them, organizing and overseeing voyages.

 Core Income-Generating Activities of a Holding Company Business

Activities related to a Holding Company Business.

Core Income-Generating Activities of an Intellectual Property Business

Where the Intellectual Property Asset is a:

1. Patent or similar Intellectual Property Asset:

a) Research and development.

b) Marketing intangible or a similar Intellectual Property Asset: Branding, marketing, and distribution.

2. In exceptional cases, except where the Licensee is a High-Risk IP Licensee, the Core Income Generating Activities may include:

a) Taking strategic decisions and managing (as well as bearing) the principal risks related to the development and subsequent exploitation of the intangible asset-generating income.

b) Taking the strategic decisions and managing (as well as bearing) the principal risks relating to the acquisition by third parties and subsequent exploitation and protection of the intangible asset.

c) Carrying on the ancillary trading activities through which the intangible assets are exploited leading to the generation of income from third parties.

Core Income-Generating Activities of a Distribution and Service Centre Business

  • Transporting and storing parts, materials, or goods ready for sale.
  • Managing inventories.
  • Taking orders.
  • Providing consulting or other administrative services.

If a business in the UAE is unable to discover whether it conducts a Relevant Activity, it should search for professional advice. Being the leading Economic Substance Regulation Services in Dubai, ARC Associates are here to help you! With the right guidance & advice, we will help you to check whether ESR applies to your business or not. You can avail of our services as we become one of the most reliable Economic Substance Consultant in Dubai, Sharjah, Abu Dhabi & all over the UAE. You can check our website https://arcauditing.ae/ for further information on the Economic Substance Regulations services in Dubai or do contact – we will be happy to help you!

Location: United Arab Emirates

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