UAE Introduces CbC Reporting, Economic Substance Rules

by Lorys Charalambous, Tax-News.com, Cyprus

16 July 2019

The UAE has recently passed legislation to introduce new country-by-country reporting requirements and new economic substance requirements.

In line with the OECD's recommendations in this area, UAE-headquartered multinational groups whose group gross consolidated turnover was Dh3.15 billion (USD857.7m) or more in the preceding tax year will be required to file a country-by-country report within 12 months of the end of the tax year. In certain circumstances, a report will need to be filed in the UAE also by a UAE-resident entity that is not the group parent.

According to preliminary media reports, the first reports are due starting from December 31, 2020, with the regime covering financial reporting years starting on or after January 1, 2019.

The requirements are set out in Cabinet Resolution No. 32 of 2019. The CbC report should contain details such as aggregate information relating to the amount of revenue, profit or loss before income tax, income tax paid, income tax accrued, stated capital, accumulated earnings, number of employees, and tangible assets other than cash and cash equivalents, with regard to each jurisdiction in which the group operates.

Further, the UAE has recently adopted new economic substance regulations, in Cabinet Resolution No. 31 of 2019. These regulations provide that a company engaged in one of a number of specified sectors must have sufficient economic substance in the territory to access the territory's tax regime. The changes are in response to pressure from the EU on a number of territories, following recommendations from its EU Code of Conduct Group.

The key activities identified by the European Commission Code of Conduct Group are: banking, insurance, fund management, financing and leasing, shipping, intellectual property, collective investment vehicles, and holding companies that generate income from any of these key activities.

The substance requirements will include being able to demonstrate that the company is directed and managed from the UAE, and that the company has adequate levels of employees as well as annual expenditure and physical offices.

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