UAE Economic Substance Regulations: Amendments

The Government of United Arab Emirate (“UAE”), introduced Economic Substance Regulations (the “Regulations”) on 30 April 2019 vide Cabinet Resolution No. 31 of 2019 supported by Ministerial decision no. 215 of 2019 (the “Guidance”) and Frequently Asked Questions (“FAQs”).

The Regulations and Guidance were followed by Cabinet Resolution No. 58 of 2019 designating Regulatory Authorities and Relevant Activity Guide (the “Guide”) providing additional guidance on the Relevant Activities(RA) and their associated Core Income Generating Activities (“CIGAs”).

On 10 August 2020, Government of UAE has amended the Regulations and the Guidance vide Cabinet Resolution No. 57 of 2020 (“amended Regulations”) and Ministerial Decision 100 of 2020 (“amended Guidance”) respectively, effectively nullifying Resolution No. 31 of 2019, Ministerial decision no. 215 of 2019, Cabinet Resolution No. 58 of 2019 and amending the Guide and FAQs.

Key amendments / changes have been discussed hereafter.

Further, the amendments /changes shall apply retrospectively from 1 January 2019.

Amendment to the definition of the term “Licensee”

  • The amended Regulations do not consider natural persons, sole proprietorship concerns, trust and foundations as Licensees. The focus is now only on corporate legal entities (including government entities) and unincorporated partnerships to be considered as Licensees.
  • It has also been clarified that branches shall be considered as extension of legal entity and shall not have separate legal status, subject to few conditions / scenarios.

Introduction of the term “Exempt Licensee”

The amended Regulations exempt the following entities from fulfilling the substance test:

  • Investment Funds
  • Entity which is tax resident outside UAE
  • Local entities (not part of MNE Group) subject to fulfillment of certain conditions
  • Branches of foreign entities subject to tax outside the UAE

Extended scope of ‘Distribution and Service Center’ Business

  • Licensees no longer required to resell goods purchased from foreign connected persons outside UAE to qualify under Distribution Business. Even local sales shall be considered as in-scope activity.
  • Licensees no longer required to provide services to foreign connected persons in connection with business outside UAE. Even services provided in connection with business within UAE shall be considered as in-scope activity.


  • The definition of High Risk IP Licensee and CIGA requirement for IP Business has been rationalized.
  • There would be electronic submission of the notifications and substance report on designated portal provided by Ministry of Finance. Notifications are required to be filed within six months from the end of the Financial Year.
  • ‘Substance Test’ will now be assessed by Federal Tax Authority, being National Assessing Authority.
  • Additional penalties in case of defaults.

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