UAE Economic Substance Services and Fees

UAE Economic Substance Services and Fees

UAE COMPANY ECONOMIC SUBSTANCE RULES – UAE CORPORATE SUBSTANCE OUTSOURCING SERVICES AND FEE PACKAGES

Outsource your UAE company’s operational, accounting, corporate secretarial and administrative functions to our firm and enjoy the unique ‘UAE advantages’ problem free being compliant with local rules!

*** SCROLL DOWN to see our UAE Economic Corporate Substance Outsourcing Fee Packages and a Practical Briefing TO HELP YOU CHOOSE which package is appropriate for YOU ***

Our goal is that all clients are fully aware of their obligations arising from legal and regulatory requirements relating to their UAE company/ies under our administration. As well as to provide 100% of the services needed to be fully compliant and problem-free. Full fee packages for our UAE economic substance outsourcing services are disclosed below.

The below relates to holding companies, companies trading in goods and/or services which is the vast majority of companies. For other activities (banking, insurance, IP, headquarter activities etc.) please contact us for further details.

FREEZONE COMPANIES

A. Activities that are required to Have Additional Enhanced Substance Arrangements

Types of Activities that are required to Have Additional Enhanced Substance Arrangements, in addition to the minimum substance requirements set out in B. below, which applies to all companies.

Service/Fee Packages are set out below for your attention.

This applies ONLY for the types of companies that whose activities caught by the new UAE legislation and regulations on substance. All other companies are not required to do anything, except the minimum as set out in B. below. The companies that are caught here are mainly companies that fall under the Distribution & Service Centre Services category (specific cases, not all, of trading in goods and services) and Holding Company category.

Note: Being required to have enhanced substance arrangements should not worry you as the law clearly states that it will adopt a pragmatic and flexible approach and connected to the size nature, value and volume of the transactions so we do not expect this to be a problem with proper planning. Also any part or all can be outsourced to our firm.

You need to be talking to us asap if your company, in 2019 or going forward conducted or going forward will conduct or you plan to conduct at any time in the future any  of the below activities so we inform you of what you need to be doing:

Holding Company Activity. A Holding Company Business is subject to reduced substance requirements as follows: 

• Comply with existing reporting / compliance requirements under the regulations applicable to the Licensee; and 
• Have adequate employees and physical assets (e.g. premises). Directors count as employees. BASICALLY FOLLOW GUIDELINES SET OUT UNDER B. BELOW.

(A Holding Company Business is not required – although for tax purposes it is necessary – to be “directed and managed” in the UAE (unless otherwise provided for under the rules and regulations of any Regulatory Authority’s) or to have / demonstrate adequate expenditure in the UAE).

Trading in certain types of trading in goods and services (distribution and service centres)

This category captures ONLY 2 specific cases you should be concerned with – see (a) and (b) below. A “Distribution and Service Centre” Business refers to two distinct activities (a) and (b) below, that are covered under one “Relevant Activity” heading. All other cases of trading in goods and services are not caught. The vast majority of our clients in this category are not caught by these regulations.

A. Distribution Centre

A UAE entity is considered engaged in a Distribution Business if it conducts all 3 legs of the below activity: 

• Purchases/buys goods from a Foreign Connected Person (related company or person); and 
• Imports these goods into the UAE (so goods must be ‘customs-cleared’ in the UAE not in transit) and 
• Distributes those goods outside the UAE.

All other trading is exempt from obligation to have enhanced substance (e.g. trading outside the UAE such as buying from 3^rd party in one country and selling to related party in another country or any type of trading that does not involve import based on customs clearance into the UAE (transit / trans-shipment via the UAE without actual importation is not captured, buying from 3^rd party foreign supplier is not caught even if there is UAE importation. Of course in these cases the requirements under B. below will apply.

All 3 above criteria have to exist to make this an activity that would require enhanced substance.

B. Service Centre

A UAE entity is considered engaged in a Service Centre Business if it: 

Provides services to a Foreign Connected Person (related party); and 

• Those services are in connection with the Foreign Connected Person’s business outside the UAE. All services to Related parties outside the UAE (Foreign Connected Persons) are caught here

The economic substance requirements for a Distribution and Service Centre Business are applicable to UAE entities whose main activity is distribution and/or service centre operations.

Licensees engaged in Banking, Insurance, Investment Fund Management, Lease-Finance, Shipping, or Headquarter Business may also purchase goods for, and/or provide services to foreign group companies as a normal part of their business operations. To prevent duplicate reporting, such Licensees are not also considered engaged in a Distribution and Service Centre Business.

UAE entities that purchase and sell goods from and to third parties, or that provide services to third parties, are not subject to the Regulations (as a Distribution and Service Centre Business).

Important Notes:

1. A separate written outsourcing agreement (as stipulated and required by law and regulation) will be signed for the below services. The agreement will contain a staff ‘non-poaching clause’ as well as necessary indemnities for our firm and other relevant terms.
2. Fees relate to simple Trading Companies in goods and services and simple Holding Companies without undue complications or requested ‘special handling’. Other categories have different Pricing to be given on application.
3. Fees are not subject to major negotiation as they have been costed fairly and in a balanced manner and the work involved is substantial and requires senior staff.
4. Fees are payable in advance for one year and are non-refundable or transferable.
5. If at any time during the course of the year it is observed that revenues/quantities increased above the agreed level a supplementary invoice will be raised to reflect this priced at the higher category plus 5% surcharge and must be paid within 30 days by the client to continue the services otherwise the agreement would be deemed as breached.
6. Any fees paid to us prior for which work was not performed or was partly performed will be deducted from the first year, on a pro-rata basis.
7. Additional fees for all other work performed for the company after your instructions (certifications, special advisory, VAT work, Real estate rental commissions for tenancy agreements, bank introductions, bank due diligence work KYC etc.) and not stated here below will be charged on a time-spent or agreed in advance basis.
8. Disbursements to any 3^rd party, VAT and other taxes not included.
9. Additional charges will apply if agreed volumes/values of transactions, assets, profits, revenues or activities are exceeded by the company or technical complexities make the work a special case.
10. Highly recommended actions – services or actions that are optional AND are not included below:

• UAE mobile phone (necessary for banks and authorities) of directors and owners that answer the phone
• Website of business as a normal business does and email account domain as well as business telephone line
• Obtain Residence Visa for all family members to reinforce links to UAE
• Personal expenditure in the UAE

B. Recommended Minimum Substance Requirements applicable to ALL Freezone Companies

(to comply to avoid regulatory banking, information exchange, tax residence and other problems and complications)

This applies to ALL FREEZONE COMPANIES weather caught by the substance regulations or not – Contact Elena Charalambous if you need our help to fulfil any of the below or to discuss

Absolutely Essential to ensure smooth operation free from regulatory or banking problems:

• Financial Statements & Statutory Audit (Mandatory from Regulator). Very important for banks also going forward.
• Keeping proper board of director meeting minutes at the dates the director is in the UAE (twice a year), as per UAE Corporate Law setting out strategic decisions and other decisions – to evidence management and control from and within the UAE (UAE tax residence)
• Resident VISA for all owners and managers (optional but recommended for family too) – to show local management is resident (management and control and tax residence). Critically important for banks to open or maintain accounts.
• Premises lease for the company needed. Companies with flexi-office arrangements need to upgrade to a proper office lease in the free-zone building (rent circa Euro 3K-5K per year). Critically important for banks to open or maintain accounts.
• Tenancy agreement at least for a studio (rent circa Euro 4-5K per year), to show proper local residence of managers and owners. Increasingly critically important for banks to open or maintain accounts.

Highly recommended:

• UAE mobile phone (necessary for banks and authorities) of directors and owners
• Local expenditure evidence in books of company (could be also directors or owners’ UAE incurred expenses air flights hotels meals anything AND should provide invoices and receipts to enter in company books)
• Website of business
• Proper commercial documentation to support bank transfers such as contracts invoices etc. ready to be produced at short notice to banks
• Avoidance of unnecessary bank and other transactions outside of the scope of the company’s main activities
• Obtain Residence Visa for all family members

Important Notes:

1. A separate written outsourcing agreement (as stipulated and required by law and regulation) will be signed for the below services. The agreement will contain a staff ‘non-poaching clause’ as well as necessary indemnities for our firm and other relevant terms.
2. Fees relate to simple Trading Companies in goods and services and simple Holding Companies without undue complications or requested ‘special handling’. Other categories have different Pricing to be given on application.
3. Fees are not subject to major negotiation as they have been costed fairly and in a balanced manner and the work involved is substantial and requires senior staff.
4. Fees are payable in advance for one year and are non-refundable or transferable.
5. If at any time during the course of the year it is observed that revenues/quantities increased above the agreed level a supplementary invoice will be raised to reflect this priced at the higher category plus 5% surcharge and must be paid within 30 days by the client to continue the services otherwise the agreement would be deemed as breached.
6. Any fees paid to us prior for which work was not performed or was partly performed will be deducted from the first year, on a pro-rata basis.
7. Additional fees for all other work performed for the company after your instructions (certifications, special advisory, VAT work, Real estate rental commissions for tenancy agreements, bank introductions, bank due diligence work KYC etc.) and not stated here below will be charged on a time-spent or agreed in advance basis.
8. Disbursements to any 3^rd party, VAT and other taxes not included.
9. Additional charges will apply if agreed volumes/values of transactions, assets, profits, revenues or activities are exceeded by the company or technical complexities make the work a special case.
10. Highly recommended actions – services or actions that are optional AND are not included below:

• 1. UAE mobile phone (necessary for banks and authorities) of directors and owners that answer the phone
  2. Website of business as a normal business does and email account domain as well as business telephone line 
  3. Obtain Residence Visa for all family members to reinforce links to UAE
  4. Personal expenditure in the UAE

RAK ICC COMPANIES

On the positive side RAK ICC Companies have considerably lighter requirements and lower maintenance cost.

On the negative side:

– their activities may also be caught by the new enhanced substance regulations which apply to RAK ICC Companies as well BUT they are restricted to fulfil obligations

– they experience “image problems’ and real problems to open and/or maintain bank accounts due to their shell company / offshore / IBC non transparent ‘high-risk’ status as they are essentially paper companies which is a regime being phased out

To see if any of your activities are caught by the new enhanced substance regulations see 1.A above (applies to both Freezone and RAK ICC companies) and also the link to the MOF Q & A’s as well as the other links at the top of this document.

What you need to do if your activities are caught by the new regulations?

• You need to be talking to us so we can assist you to assess your options (if you want to keep the old RAK ICC company going forward then you need to either convert the RAK ICC into a Freezone Company or set up an additional Freezone company who will become the new shareholder of the old RAK ICC Company in order to fulfil the substance obligations by outsourcing the substance required to it OR you may want to close the company and continue with a new Freezone company OR even you may stay with the RAK ICC Company but outsource most or all of its substance obligations to us. We need to discuss and help you understand your options.

Recommended Minimum Substance Requirements applicable to ALL RAK ICC

(to comply to avoid regulatory banking, information exchange, tax residence and other problems and complications)

This applies to ALL RAK ICC COMPANIES weather caught by the substance regulations or not- Contact Elena Charalambous if you need our help to fulfil any of the below or to discuss

Absolutely Essential to ensure smooth operation free from regulatory or banking problems:

• Keeping books and record to Balance Sheet and Profit & Loss Level able to be produced at short notice to banks
• RAK ICC requirements for licence / reg. agent etc

Highly recommended:

• Website of business
• Proper commercial documentation to support bank transfers such as contracts invoices etc. ready to be produced at short notice to banks
• Avoidance of unnecessary bank and other transactions outside of the scope of the company’s main activities 

Important Notes:

1. A separate written outsourcing agreement (as stipulated and required by law and regulation) will be signed for the below services. The agreement will contain a staff ‘non-poaching clause’ as well as necessary indemnities for our firm and other relevant terms.
2. Fees relate to simple Trading Companies in goods and services and simple Holding Companies without undue complications or requested ‘special handling’. Other categories have different Pricing to be given on application.
3. Fees are not subject to major negotiation as they have been costed fairly and in a balanced manner and the work involved is substantial and requires senior staff.
4. Fees are payable in advance for one year and are non-refundable or transferable.
5. If at any time during the course of the year it is observed that revenues/quantities increased above the agreed level a supplementary invoice will be raised to reflect this priced at the higher category plus 5% surcharge and must be paid within 30 days by the client to continue the services otherwise the agreement would be deemed as breached.
6. Any fees paid to us prior for which work was not performed or was partly performed will be deducted from the first year, on a pro-rata basis.
7. Additional fees for all other work performed for the company after your instructions (certifications, special advisory, VAT work, Real estate rental commissions for tenancy agreements, bank introductions, bank due diligence work KYC etc.) and not stated here below will be charged on a time-spent or agreed in advance basis.
8. Disbursements to any 3^rd party, VAT and other taxes not included.
9. Additional charges will apply if agreed volumes/values of transactions, assets, profits, revenues or activities are exceeded by the company or technical complexities make the work a special case.
10. Highly recommended actions – services or actions that are optional AND are not included below:

1. 1. UAE mobile phone (necessary for banks and authorities) of directors and owners that answer the phone
   2. Website of business as a normal business does and email account domain as well as business telephone line
   3. Obtain Residence Visa for all family members to reinforce links to UAE
   4. Personal expenditure in the UAE

Legal References – Click below:

(Useful for your advisors or for your OWN reference)

*** READ THE LATEST FULL TEXT OF THE UAE MOF QUESTIONS AND ANSWERS ON THE TOPIC OF UAE COMPANY SUBSTANCE – EASY PRACTICAL USEFUL ***

*** READ THE FULL TEXT OF THE COMPANY SUBSTANCE LEGISLATION ***

*** READ THE FULL TEXT OF THE REGULATIONS PERTAINING TO THE UAE COMPANY SUBSTANCE LAW ***