UAE reduces economic substance reporting requirements

Following Cabinet Decision No. 98, which has amended certain provisions of 2020’s Cabinet Decision No. 57 on economic substance requirements, economic substance reporting – requiring companies to maintain an adequate ‘economic presence’ in the UAE – will no longer be in effect for financial years ending after 31 December 2022.

According to a statement from the Ministry of Finance, the decision to abolish economic substance reporting obligations moving forward is intended to allow companies to focus on compliance with the UAE corporate tax system.

Despite this reporting obligation being removed, it is still a requirement that economic substance be demonstrated in accordance with the UAE’s corporate tax regulations, and companies will be liable for any filings or penalties imposed up to 2022.

Any fines paid in relation to breaches that have occurred after 2022 are expected to be refunded.

Chris Neal, a corporate law expert at Pinsent Masons, said the decision would likely reduce companies’ administrative burden. “It will also simplify compliance and reduce penalties for non-compliance during the relevant period being waived,” he said.

Alexandra Aikman, a corporate law expert at Pinsent Masons, said the change would be considered a positive one by businesses, helping to streamline their reporting obligations and allowing them to focus on tax compliance.

“The focus on tax compliance reflects the UAE’s commitment to promote global standards and maintain the UAE’s attractiveness to the market as a place to invest and do business,” she said.

“Clients need to make sure they are still meeting their reporting obligations for the years prior to 31 December 2022. They should also note that, while the reporting obligations have been lifted, it is still important to ensure economic substance in the region can be demonstrated and advice should still be sought to ensure compliance with relevant legislation.”