06 Jul The New Taxation policy of the U.A.E: Understanding the Mandatory Regulations for Companies
The COVID-19 outbreak has brought changes to every sphere of our lives. Obviously, the finance sector would not be an exception. Moreover, with the ever dropping prices of oil (currently below 30 bp), certain impacts are expected to be felt throughout the world economy. However, some sectors would feel them more than the other.
For example, there would be substantial effects on the regional tax authorities as fiscal pressure is going to lie heavy on them. The primary method of combatting the economic crisis is to maintain, or in certain cases improve, the cash flow for businesses. In this regard, tax reliefs and allocation of incentives are already on their way.
As per the estimates of the Dubai govt, the total public revenue would be AED 64 billion, of which 29% would be the tax revenue of the country. Taking into consideration the economic incentive measures, comparisons with the previous year’s statistics tell us that this is an increase of 25%.
Now, the pandemic is turning out to be quite expensive for many of the governments across the world. For this reason, every government needs to strategize and plan their movements as well as economic engagements, while carefully focusing on the fiscal projects to strengthen the economy. The most crucial time starts when the outbreak is finally under control and each country has to re-evaluate its long or medium-term strategies. This also includes making up for the losses and generating the revenue needed to balance the expenditure imposed by Covid-19.
Every business venture would be more or less affected by these policies for which it is imperative that they are at per or at least ready to welcome the changes without suffering a loss of their profit.
So, one thing is clear that COVID 19 is making holes in the pockets of many including that of the governments’. Keeping this in mind, if we look at the future that awaits us, with the risk of sounding speculative, a few deductions can be made. Governments are most likely to increase the frequency of tax audits to generate more revenues and balance their sheet of income and expenditure. This also means that companies might have to submit more data to prove the transparency of their affairs and get a clean chit in terms of taxation.
Taxation at U.A.E
Taxation at U.A.E has to keep up with certain international standards owing to its membership of BEPS IF (Base Erosion and Profit Shifting Inclusive Framework) which strictly requires it to maintain a systemic and planned approach when it comes to tax companies. Also, the U.A.E is determined to be thorough with its tax framework and has taken up the responsibility of achieving this after being assessed by the European Union Code of Conduct Group.
Economic Substance Regulation or (E.S.R) has been one of the most remarkable additions and would inevitably bear certain crucial consequences for all the companies spread across U.A.E. The importance of this change can be located if we are to consider the much-discussed direct taxation and compliance policy that the Ministry of Finance had been already on board with.
What is E.S.R?
The history of E.S.R dates back to 30th April 2019, when the government took it up as the cabinet resolution (No. 31) and applied it to the whole region. The part that needs to be stressed in this regard is that this regulation DOES NOT exclude the free zones.
So, every business settled across U.A.E is bound to the Economic Substance Regulation from the date of the issuance of the latter which is 30th April 2019. Not only that, but every company also needs to submit its first report which would be due on or before 30th June 2020. The location of the business, in this case, has a role to play in the scheduling of the dates.
In the following paragraph, you can find the deadlines of the regions with respect to E.S.R filings.
Abu Dhabi Global Market (AGDM) – In case you missed the deadline for filing here are few details for you. First, the previously allocated deadline of 31st March 2020 has been canceled. Also, there has been no announcement of the new deadline as of yet. However, it is important to bear in mind that it is most probable that the deadline would not surpass 30th June.
- Ras Al Khaimah International Corporate Centre (RAK ICC): 30 June 2020
- Ajman Free Zone (AFZ): 30 June 2020
- Dubai Airport Freezone (DAFZ): 3 May 2020
- Dubai International Financial Centre (DIFC): 12 June 2020
- Dubai Silicon Oasis Authority (DSO): 30 June 2020
- Dubai Multi Commodities Centre (DMCC): 30 June 2020
Notifications of the deadline are yet to be released by the other regulatory authority in the near future.
If you are the administrator or executive of a U.A.E based entity, there are a few things that you have to bear in mind in order to be prepared for the E.S.R. Your first task is to execute an “Economic Substance” impact assessment. This would help to achieve two things.
First, prepare you for the filing of the economic substance notification along with the Economic Substance detailed report if and when required. Second, it would also make you aware of how your companies continue to get affected by these newly introduced changes.
The Consequences of Missing the Deadlines
Penalties ranging from AED10,000 to AED50,000 would be charged in case of missing deadlines or if the regulations for filing are not obeyed.
So, these changes bear a lot of consequences for the companies and thus each of them needs to be on par with the changes and about the impacts of the same on the different firms.
In case you have complexities in particular sectors of your business, get the help of the experts to ease out your operations. However, missing the deadline is strictly discouraged as it can further increase your trouble and might amount to a hefty penalty for petty reasons.
We hope this article serves the purpose of clearing out doubts about the new taxation policy and helps you grasp the consequences of the same as well as the requirements on your part to make your business flourish even in these trying times.