Update related to ESR, AML-CFT and UBO regulations in the UAE

Update related to ESR, AML-CFT and UBO regulations in the UAE

Dealing with the fallout from COVID-19 was not the only thing on the minds of UAE businesses last year. The UAE has been tightening up regulations governing the conduct of business in the country, with far-reaching consequences.

What is ESR?

The ESR Dubai Regulations were enacted in response to international initiatives aimed at combating harmful tax avoidance practices. The ESR Dubai applies to all legal entities that engage in Relevant Activities for fiscal years beginning on or after January 1, 2019.

The ESR's purpose is to ensure that legal entities engaged in Appropriate Operations in the UAE report profits related to Relevant Activities in a transparent manner.

Updated ESR Regulations:

· The new ESR Dubai law stipulates that when a UAE company has a branch in the UAE with a single parent company for all of them, they do not need to file separate ESR notifications. The ESR regulations notification does not have to be filed separately by each branch. All you have to do is file a single notification that details all of your parent company's relevant activities in the UAE, as well as the actions of all of your branches.

· Licensees must comply with the New ESR regulations; however, the definition has changed, and now only applies to a corporate entity, established outside or inside the UAE, or an unincorporated partnership in which each partner must have a presence in the UAE and engage in a Relevant Activity.

· Licensees who must meet the economic substance test should submit their Report of Economic Substance to the Ministry of Finance within 12 months after the end of the financial year for the Licensee. The report must contain the following information:

Type of Relevant Activity conducted:

Banking Business

Insurance Business

Investment Fund management Business

Lease - Finance Business

Headquarters Business​​

Shipping Business

Holding Company Business 

Intellectual property Business (“IP")

Distribution and Service Center Business​

Type and Amount of gross income incurred from the Relevant Activity

Type and Amount of assets and expenses operating with respect to the Relevant Activity

Location of the relevant activity of the business and, if applicable, property, plant, or equipment used for conducting the Relevant Activity.

Number of full-time employees with qualifications and number of personnel who are responsible for carrying out the Relevant Activity

Core Income-Generating Activity in respect of Relevant Activity being carried out by it

Financial statements

Declaration by the Licensee if the business satisfies the economic substance test.

AML Compliance:

The UAE maintains a robust anti-money laundering system in order to increase transparency and comply with regulations in other international jurisdictions.

This system is supported by two laws: No. 2/2002 Anti-Money Laundering (AML) and No. 1/2004 Counter-Terrorist Financing (CTF) (CTF).

Updated AML/CFT:

The Federal Decree-Law No. (20) of 2018 On Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organizations (the "AML-CFT Law" or "the Law") and its implementing regulation, Cabinet Decision No. (10) of 2019 Concerning the Implementing Regulation of Decree-Law No. (20) of 2018 On Anti-Money Laundering and Combating the Financing of Terrorism

ULTIMATE BENEFICIAL OWNERSHIP (UBO):

Ultimate Beneficial Ownership (UBO) is a Cabinet Resolution that requires UAE businesses to disclose information about their beneficial owners. All significant shareholders and nominee directors are considered beneficial owners.

Updated UBO regulations UAE:

The Resolution mandates that entities licensed in the UAE draft and file an Ultimate Beneficial Owner Dubai Economic Department ("UBO") register, Nominee Director registration (where applicable), and Partners or Shareholders register (unless exemptions apply). with the relevant authority within sixty (60) days of the Resolution's effective date, which is October 27, 2020, or by the date, the entity is established. While certain Free Zones (e.g., the Dubai Development Authority and the Dubai Multi Commodities Centre) have already implemented rules and processes for filing UBO data. In respect to the filing mechanisms, a number of other Free Zone authorities and the Department of Economic Development (for onshore entities) are expected.

The Resolution applies to all UAE-licensed entities, with the exception of the following: 

Entities in financial free zones (Abu Dhabi Global Markets and Dubai International Financial Centre).

Entities wholly owned by the federal or emirate governments, either directly or indirectly.

Further information regarding updated UBO regulations UAE:

UBOs are natural individuals who own, control or have the right to vote in a corporation with a minimum of 25% shareholding, whether directly or indirectly, and who have the power to select or fire the majority of the Directors / Managers.

If no natural person meets the aforementioned criteria, any natural person who has control over the company through other means is considered the UBO.

If no natural person meets both of the aforementioned criteria, the UBO will be a natural person who is in charge of the company's top management.

Probity Corporate is known as a group of professional experts that know Dubai inside and out, from north to south. Our marketing plans are built on tried-and-true growth principles, and we take every precaution to ensure that they are implemented properly. For any queries regarding updated regulations, you can contact us and our team will be happy to help you at every step. As a helpful hand, we provide fast recommendations and support to our valued clients. 

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