Guidance on Economic Substance Reporting

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The U.A.E. Ministry of finance has recently updated guidance on Economic Substance Report.

Terminology

Guidance

Total Revenue

Total revenue is the income received from an entity’s ordinary activities, as reported in the first line of the income statement.
Transactions that do not arise from an entity’s ordinary activities (e.g., dividend income or gains from the sale of an asset) are not included in Total Revenue

Tangible Assets

Tangible assets are assets that have a finite monetary value, and usually have a physical form.

This can include:

Property, plant and equipment
Inventory
Receivables
Cash

The Licensees who are required to file Economic Substance Reports should carefully consider the above updates while filing their Economic Substance Reports to ensure accurate reporting.

Non-compliance with the obligation to file an Economic Substance Report before the deadline is subject to a penalty of AED 50,000, and can result in the Licensee being deemed to have failed the Economic Substance Test for the relevant Financial Year.

Other relevant information

Are audited financial statements for the Reportable Period available?
Audited financial statements are financial statements that have been audited by an independent external auditor. This question should be answered with “”yes”” if stand-alone audited financial statements for the Licensees are available, or if the Licensee has been consolidated for financial reporting purposes in the audited financial statements of a parent or group company.
Currency used for financial information included in the Economic Substance Report
All financial information must be provided in either UAE Dirham (AED) or United States Dollar (USD). Amounts received or paid in a different currency must be translated into AED or USD using the exchange rate prevailing (generally the spot rate when the amount was received, paid or accrued for).
What is Relevant Income from the Relevant Activity for the Reportable Period:
All gross income from RA generated within and outside UAE (e.g., sales of goods, services, royalties, interest, premiums, dividends
What are Operating expenditure incurred in relation to the Relevant Activity for the Reportable Period:
Expenditure incurred by the Licensee in order to perform the Relevant Activity (e.g., payroll, sales commissions, overhead / administrative expenses, transportation and travel costs, amortization and depreciation, and rent.
Average number of full time equivalent (FTE) employees in the UAE:
Employees refers to the number of persons involved in carrying on the Relevant Activity in the UAE, employed directly or by service provider, calculated based on a standard working week of 40 hours for the entire Reportable Period. Directors that perform Core Income-Generating Activities (“CIGAs”) should also be counted.
Expenditure incurred on Outsourcing Providers in the UAE in relation to the Relevant Activity for the Reportable Period
Total expenditure incurred by the Licensee on the outsourcing of any of the CIGAs to an Outsourcing Provider.
Ultimate Parent Company definition
Owns directly or indirectly a sufficient interest that it is required to prepare consolidated financial statements under applicable accounting standards or would be so required if its equity interests were traded on a public securities exchange in its jurisdiction of tax residence.