In 2019, the UAE introduced Economic Substance Regulations that require certain entities carrying on a 'Relevant Activity' and earning income from that activity to demonstrate an adequate level of operational and financial connection (or Substance) within the UAE.
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Any entity that carried out a Relevant Activity during its financial year must file an Annual Notification with the UAE Ministry of Finance within 6 months of the end of the company's financial year. This notification includes basic details about the Company and a confirmation of the Relevant Activity that the company carried out.
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If the entity carried out a Relevant Activity AND received revenue from that activity, then it must submit a second filing to the Ministry of Finance. This second filing is a Economic Substance Report and must be filed within 12 months of the end of the company's financial year. The report will include detail on the economic and operational connection that the entity had in the UAE in order to demonstrate its substance.
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The Regulations contain exemptions for certain entities, with the most common ground being an entity that is wholly owned by UAE Residents and only carries out business activities in the UAE. An exempt entity must still file the Annual Notification confirming its activities and the basis of its exemption, but if the exemption is granted, it is not required to meet the substance requirements and file the Economic Substance Report.