The United Arab Emirates (UAE) is a sought-after destination for investors, international organisations, and start-ups alike. With an economy that is expected to grow by over 5% in 2022, as well as high vaccination rates, rising wages, and superior quality of life, it’s easy to understand why the emirates are considered a desirable destination for business activities.
As the UAE continues to grow, it is essential for organisations, institutions, and businesses who set up in the emirates to ensure they adhere to the local laws, rules and regulations.
The UAE has introduced several legislations in recent years, designed to regulate and safeguard businesses across the UAE. However, amidst a rapidly changing regulatory landscape and with certain distinctions between industries and emirates, organisations face a challenging task in ensuring they remain compliant.
In response to scrutinisation from the OECD, the UAE has increased its efforts to crack down on organisations that don’t adhere to appropriate levels of compliance, going so far as to provide protection for whistleblowers. In July 2022, the Central Bank of the UAE (CBUAE) imposed financial sanctions on six banks operating in the UAE that were found to be non-compliant.
Non-compliance can have a significant impact – it can affect both business finances and business reputation. To help ensure your ongoing business compliance, here are the six most recent legislations and measures you need to know:
I. Economic Substance Regulations
To align with the global standards developed by the OAED and the EU to prevent harmful tax practices, the Economic Substance Regulations (ESR) were brought in on 30 April 2019. ESR requires UAE companies to have substantial activities that maintain an “economic presence” in the UAE, in relation to their licensed business activities. Penalties for non-compliance can cost upwards of tens of thousands of dirhams – an easy way to avoid this is to get guidance from tax professionals.
II. Value Added Tax
Value Added Tax (VAT) was introduced in the UAE on 1 January 2018 as means to fund high-quality public services, as well as help the government achieve its vision of reducing financial dependence on hydrocarbons.
There are three VAT types in the UAE:
- Zero per cent
- Five per cent
The UAE has a list of strict administrative penalties that will be imposed on businesses that violate these tax laws.
III. Ultimate Beneficial Owner (UBO) regulations
In July 2021, the UAE implemented the Ultimate Beneficial Owner (UBO) and authorised licenced parties across the emirates to implement administrative penalties and fines for companies who do not submit their UBO information.
In principle, a UBO is the person who directly or indirectly owns and controls a company. This may include a person with a minimum of 25% shares or voting rights, a person with authority to dismiss or appoint the majority of company directors, or a person with responsibility for senior management.
Identifying the UBO and reporting accurately is vital for all businesses setting up in the UAE to avoid issues at a later date.
IV. Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organisations (AML-CFT Law)
The AML-CFT Law was issued in 2018 as part of the UAE’s commitment to international standards and requirements. The law is part of the country’s numerous laws, policies, and frameworks to deter and combat finance-related crimes, such as money laundering and the financing of terrorism activities.
The law covers financial and non-financial sectors exposed to these risks including Real Estate, Metals & Gemstones, Accounts & Auditors, and Corporate Service Providers.
In July 2022, the UAE announced it had issued $11m in fines for anti-money laundering offences in H1 2022. Penalties for not accurately complying with this law include monetary fines, bans on business activities, arrests and prosecution, imprisonment, and license cancellation.
V. Corporate Tax
If you are a business with a financial year starting 1 January 2023 or after, you will be subject to corporate tax as of 2023. Most countries worldwide have a comprehensive corporate tax system, and the UAE will be the most competitive in the world.
The introduction of this new federal tax will reaffirm the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices.
Corporate Tax in the UAE will be calculated based on the annual taxable income of a business, and tax rates of zero per cent, nine per cent, and a third tax rate for multinationals, will apply to companies. Freezones which are compliant with all regulations may be exempt.
Effective tax planning will ensure that you are not paying more than you should and that you transition into the next financial year risk-free and fully compliant.
VI. Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA)
In 2015, the UAE implemented the OECD’s Common Reporting Standard Regulations (CRS), which applied to all UAE jurisdictions, including free zones and financial free zones. FATCA is a US legislation which aims to combat offshore tax evasion by US persons and is adhered to by most countries in the Middle East.
Both FATCA and CRS require all financial institutions in the UAE to identify and report any US persons that hold assets abroad to the US Internal Revenue Service (IRS). The process for reporting has changed over recent years, and the process to ensure compliancy depends on the type of organisation you operate.
The majority of all non-compliance penalties result in monetary fines. Our team has extensive experience protecting businesses from the adverse impact of compliant risk and can advise you on how you can remain compliant within this complex regulatory landscape.
To know more about regulation and law related to business compliance in the UAE, get in touch
us and we will be happy to share additional information.
TAntoinette@dtos-mu.com T. +971 5079 54 345