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What is a Relevant Activity for economic substance purposes?
What is a Relevant Activity for economic substance purposes?
Updated over a week ago

Under the UAE Economic Substance Regulations, there are 9 categories of "Relevant Activities" which are summarised below:

  1. Holding company: a business whose sole function is the acquisition and holding of shares or equitable interests in other companies and only earns dividends and capital gains from its equitable interests.

  2. Banking business: a business of accepting deposits of money which may be withdrawn or that are repayable on demand or after a fixed period. Would generally be licensed as a commercial bank.

  3. Insurance business: a business of accepting risks by effecting or carrying out contract of insurance, in both the life and non-life sectors, including contracts of reinsurance and captive insurance arrangements.

  4. Investment Fund management business: Licensees that provide discretionary investment management services in relation to domestic or foreign investment funds. This includes making investment, divestment and risk related decisions on behalf of an investment fund. UAE businesses providing fund administration, custodian, investment advisory and other fund related services are not considered to fall within this category.

  5. Lease-Finance business: Licensees that offer credit or financing for any kind of consideration and includes intra-group financing. The investment in bonds or similar securities that are traded on a regulated exchange are not covered by this category.

  6. Headquarters business: Licensees that provide services to foreign group companies and through the provision of such services takes on the responsibility for the overall success of the group or for an important aspect of the overall group's performance. It should be noted that the licensee does not need to be the direct or ultimate parent of a group company for it to be considered a Headquarters business.

  7. Shipping business: Licensee operates one or more shops in international traffic, for the transport of either passengers, cargo or both.

  8. Intellectual Property ("IP") business: if a business holds, exploits or receives gross income from an Intellectual Property asset. An IP Asset is any intellectual property right in intangible assets (copyrights, trade marks, patents etc) from which the Company earns separately identifiable income). The guidance from MoF is clear that owning IP does not in itself make a business an IP Business. Most businesses own IP that are auxiliary to the main business. The IP must be used to generate separately identifiable income to fall within this licence category.

    An Intellectual Property business can also be classified as a "High Risk IP Business" if:

    • it did not create the IP in the IP asset which it holds;

    • acquired the IP asset from a Group entity or in consideration for funding R&D by another person outside the UAE; and

    • licences the IP asset to a Group entity or otherwise generates income from the IP asset because of activities of a Group entity that is tax resident outside the UAE.

  9. Distribution and service centre business: Distribution business is one that purchases raw materials or finished products from a foreign group company and distributes those raw materials or finished goods. A Service centre business provides consulting, administrative or other services to a foreign group company.

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