Cabinet Resolution № 57 of 2020

Concerning the Economic Substance Requirements

The provisions of this Resolution shall apply to financial years commencing from 01/01/2019 until the financial year ending on 31/12/2022.

Cabinet of ministers

Having reviewed:

The Constitution,
Federal Law № 1 of 1972 on Competencies of the Ministries and Powers of the Ministers, and its amendments,
Federal Law № 18 of 1981 on the Regulation of Commercial Agencies, and its amendments,
Federal Law № 26 of 1981 on the Commercial Maritime Law, and its amendments,
Federal Law № 5 of 1985 Promulgating the Civil Transactions Law, and its amendments,
Federal Law № 3 of 1987 Promulgating the Penal Code, and its amendments,
Federal Law № 10 of 1992 Promulgating the Law of Evidence in Civil and Commercial Transactions, and its amendments,
Federal Law № 11 of 1992 Promulgating the Civil Procedure Law, and its amendments,
Federal Law № 37 of 1992 on Trademarks, and its amendments,
Federal Law № 4 of 2000 on the UAE Securities and Commodities Authority and Market, and its amendments,
Federal Law № 7 of 2002 on Copyrights and Neighbouring Rights, and its amendments,
Federal Law № 17 of 2002 Regulating and Protecting Industrial Property Rights of Patents and Industrial Drawings and Designs, and its amendments,
Federal Law № 8 of 2004 on the Financial Free Zones,
Federal Law № 6 of 2007 on the Establishment of the Insurance Authority and the Organisation of its Operations, and its amendments,
Federal Law № 2 of 2015 on Commercial Companies, and its amendments,
Federal Law № 8 of 2015 Concerning the Federal Customs Authority,
Federal Decree-Law № 13 of 2016 on the Establishment of the Federal Tax Authority,
Federal Law № 14 of 2016 on the Violations and Administrative Fines in the Federal Government,
Federal Law № 19 of 2016 on Combating Commercial Fraud,
Federal Law № 7 of 2017 on Tax Procedures,
Federal Decree-Law № 8 of 2017 on the Value Added Tax,
Federal Law № 8 of 2018 on Finance Leasing,
Federal Decree-Law № 14 of 2018 on the Central Bank and the Organisation of the Financial Activities and Institutions,
Federal Decree № 48 of 2018 Approving the Multilateral Administrative Agreement for the Automatic Exchange of Information,
Federal Decree № 54 of 2018 Approving the Convention on Mutual Administrative Assistance in Tax Matters,
Cabinet Decision № 31 of 2019 Determining the Economic Substance Requirements, and its amendments,
And Cabinet Decision № 58 of 2019 Determining the Regulatory Authorities Concerned with the Businesses Mentioned in Cabinet Decision № 31/2019 Determining the Economic Substance Requirements,

Based on the proposal of the Minister of Finance and the approval of the Cabinet,

Has decided as follows:

Article 1 - Definitions

In application of the provisions of this Decision, the following terms and expressions shall have the meanings assigned against each, unless the context requires otherwise:

Word or Expression	Definition
State	The United Arab Emirates.
Banking Businesses	Shall have the meaning specified in the law regulating such businesses in the State.
Working Day	The weekdays from Sunday through Thursday except for days of leave and public holidays.
Work Document	Either of the below: a- A document pertaining to the exercise of a Relevant Activity by the Licensee or the Exempt Licensee. b- A document that forms part of any register under a piece of legislation applicable to the Licensee or to the Exempt Licensee.
Workplace	The premises used to exercise any Relevant Activity in the State by the Licensee or the Exempt Licensee.
Competent Authority	The Ministry of Finance.
Central Bank	The Central Bank of the United Arab Emirates.
Competent Foreign Authority	The foreign authority appointed under an international agreement or convention or a similar international arrangement concluded by the State to request and receive any information or documents in relation to the implementation of any provision of this Decision.
Connected Person	An entity that is a part of the same Group as the Licensee or the Exempt Licensee.
Distribution and Service Centre	A centre that conducts either of the following activities: a- Purchasing from a Foreign Connected Person parts, components or goods ready for sale and reselling these parts or goods. b- Providing services to Foreign Connected Persons.
Economic Substance Requirements	The requirements that are set out in Article 6 of this Decision.
Economic Substance Report	The report to be raised under Clause 4 of Article 8 and Clause 5 of Article 8 of this Decision.
Financial Free Zone	A financial free zone established under aforementioned Federal Law № 8 of 2004.
Financial Free Zone Authority	The authority delegated in the Financial Free Zone in question to act as the Regulatory Authority for the purposes of this Decision.
Fiscal Year	The financial year of the businesses of a Licensee or an Exempt Licensee.
Foreign Connected Person	The Connected Person whose tax residence is not in the State.
Free Zone	A free zone established in the State.
Free Zone Authority	The authority delegated in the free zone in question to act as the Regulatory Authority for the purposes of this Decision.
Investment Fund Management Businesses	Shall have the meaning specified in the law regulating such businesses in the State.
Headquarters Businesses	The provision of any of the following services to one or more Foreign Connected Persons: a- Senior management functions. b- Mainly taking, or controlling, the risks associated with the businesses in which the Foreign Connected Person is engaged or the risks associated with the assets owned thereby. c- Providing consultations about the substantive provisions on taking, or controlling, the risks referred to in Paragraph (b) of this definition.
“High-Risk” Intellectual Property Licensee	The Licensee conducting intellectual property activities whereby: a- It did not create the property right over the Intellectual Property Assets it holds for the purposes of exercising business activities. b- It acquired the Intellectual Property Assets: 1- Either from a Connected Person. 2- Or in consideration of financing the research and development conducted by a person residing in a country other than the State. c- It licenses or sells the Intellectual Property Assets to one or more Connected Persons or otherwise earns an identifiable income from a Foreign Connected Person in relation to the use or exploitation of these assets.
Holding Company Businesses	Shall mean the activity: a- That is limited to the ownership and acquisition of shares, equity interests or rights in the capital of other companies. b- That generates an income solely from the profits and capital gains from the rights of capital.
Income Generated from Intellectual Property Assets	Shall include any of the following: a- The returns. b- The income generated from a concession agreement. c- The income generated from Intellectual Property Asset licensing. d- The income generated from an increase in the value or any other income generated from the sale of Intellectual Property Assets.
Insurance Businesses	Shall have the meaning specified in the law regulating such businesses in the State.
Intellectual Property Businesses	The businesses that involve acquiring, exploiting or obtaining an income from Intellectual Property Assets.
Intellectual Property Assets	Any intellectual property right over intangible assets, including but not limited to copyrights, patents, trademarks, brand and technical know-how, which generates an income that can be accounted for separately from any revenues realised from tangible assets.
Notification	The Notification to be submitted under the provisions of Article 8 of this Decision.
Lease-Finance Businesses	Shall have the meaning specified in the law regulating such businesses in the State.
National Assessing Authority	The Federal Tax Authority appointed under the provisions of Article 5 of this Decision.
Regulatory Authority	The authority/ authorities entrusted with the regulation of the Relevant Activity for the purposes of this Decision as specified in Article 4 hereof.
Relevant Activity	Any of the activities set out in Article 3 of this Decision.
Licence	The commercial licence or the permit issued by the competent licensing authority in the State including the Free Zone and the Financial Free Zone.
Licensee	Either of the following entities: a- A legal person (established inside or outside the State). b- A consortium with no autonomous juristic personality. The Licensee shall be registered in the State, including the Free Zone and the Financial Free Zone, and shall exercise a Relevant Activity.
Exempt Licensee	Any of the following Licensees: a- An Investment Fund. b- A Licensee whose tax residence is located outside the State. c- A Licensee that is fully-owned by one or more residents in the State and that meets both of the following conditions: 1- It is not considered part of a Group of Multinational Companies. 2- It exercises its activity exclusively in the State. d- A branch of a foreign entity registered in the State whose Income Generated from the Relevant Activity is taxable in any country other than the State. e- Any Licensee granted the status of “Exempt Licensee” by decision of the Minister of Finance.
Ultimate Beneficial Owner	An individual who owns directly or indirectly twenty-five percent (25%) or more of the share capital of the Licensee or the Exempt Licensee.
Ship	Shall have the same meaning set out in Article 11 of Federal Law № 26 of 1981 on the Commercial Maritime Law, and its amendments, but shall not mean a fishing boat, a small ship or a pleasure craft (as specified in Article 18 of the same law).
Consolidated Financial Statements	The consolidated financial statements of the Group including all the assets, liabilities, incomes, expenditures and cash flows of the Ultimate Parent Company as a single economic unit.
Group	Two or more entities that are linked by ownership or control to the extent that they are required, in accordance with the accounting standards applicable in respect thereof, to prepare Consolidated Financial Statements for the purposes of submitting financial reports.
Investment Fund	An entity whose main activity consists of granting investment rights to raise funds or collect investor funds for the purposes of enabling the investment right holder to benefit from the profits or the returns generated from that entity acquiring, obtaining, managing or disposing of the investments. This shall include any entity through which an Investment Fund invests either directly or indirectly, and shall exclude the entity or group of entities in which the Fund invests.
Group of Multinational Companies	Any group that consists of either of the following: 1- Two or more entities each with a tax residence in a different country. 2- A single entity that resides in a country for tax purposes and that is taxable for the activities it conducts through a branch or a permanent establishment set up in another country.
Consortium	a- A limited partnership (that does not have independent juristic personality). b- A general partnership, registered in the State, including a Free Zone or a Financial Free Zone.
Income Generated from Related Activity	Gross income generated from a Related Activity that is entered in the registers of the Licensee or the Exempt Licensee in accordance with the accounting standards applicable in respect thereof.
Shipping Businesses	The activity involving the operation of a Ship anywhere in the world other than the State’s territorial waters, including: a- Transport of persons, animals, goods or mail by sea. b- Chartering of Ships for a specific journey or period, for the purpose set out in Paragraph (a) here-above. c- Sale of tickets or their equivalent, and additional services related to the operation of the Ship. d- Use, maintenance or lease of containers, including trailers and other vehicles or the necessary equipment for transporting the containers, which are used to transport anything by sea. e- Management of the Ship crew.
Core Income-Generating Activity	Shall have the meaning set out in Article 3 of this Decision.
Parent Company	The entity that: a- Directly owns the majority of voting rights in the Licensee or the Exempt Licensee. b- Has the right to appoint or remove the majority of the members of the board of directors of the Licensee or the Exempt Licensee. c- Controls singly or, under a joint arrangement with other shareholders or members, the majority of voting rights in the Licensee or the Exempt Licensee. d- Has the right to exercise, or actually exercises, direct influence or control over the Licensee or the Exempt Licensee.
Ultimate Parent Company	The entity member of the Group that meets the following standards: a- It has sufficient direct or indirect interest in the Licensee or the Exempt Licensee such that it is required to prepare Consolidated Financial Statements in accordance with the accounting standards applicable in respect thereof, or it would be so requested if its equity interests were traded on the stock exchange in its jurisdiction of tax residence. b- There is no other entity member in the Group that has direct or indirect interest therein such that it is required to prepare Consolidated Financial Statements in accordance with the accounting standards applicable in respect thereof, or it would be so requested if its equity interests were traded on the stock exchange in its jurisdiction of tax residence.
Third Party Service Provider	A person or an entity that exercises a Core Income-Generating Activity on behalf of the Licensee pursuant to the conditions set out in Clause 2 of Article 6 of this Decision.

Article 2 - Objectives of Decision

This Decision shall determine the requirements to be met by the Licensee and shall set the standards for verifying that the business activity conducted by the Licensee in the State is qualified as an Economic Substance.

Article (2) bis - Scope of Application

The provisions of this Resolution shall apply to financial years commencing from 01/01/2019 until the financial year ending on 31/12/2022.

⚠️

Article (2) bis was added by Cabinet Resolution No. 98 of 2024.

⚠️

!!! as per Cabinet Resolution No. 98 of 2024 -

All administrative penalties imposed on a Licensee or an Exempted Licensee in accordance with the provisions of Cabinet Resolution No. (57) of 2020 referred to, for financial years ending after 31 December 2022, shall be cancelled.
In the event that any administrative penalties are imposed on a Licensee or an Exempted Licensee in accordance with the provisions of Cabinet Resolution No. (57) of 2020 referred to, for any financial year ending after 31 December 2022, the Federal Tax Authority shall refund such penalties and terminate all grievances filed in respect thereof.

Article 3 - Relevant Activity and Core Income-Generating Activity

For the purposes of this Decision, the Relevant Activity shall designate any of the following:
- (a) Banking Businesses.
- (b) Insurance Businesses.
- (c) Investment Fund Management Businesses.
- (d) Lease-Finance Businesses.
- (e) Headquarters Businesses.
- (f) Shipping Businesses.
- (g) Holding Company Businesses.
- (h) Intellectual Property Businesses.
- (i) Distribution and Service Centre Businesses.
The Core Income-Generating Activities shall designate the businesses of key importance to the Licensee for the purposes of generating an income from a Relevant Activity, including:

(a) Banking Businesses which are related to any of the following:
- (i) raising funds and managing risks, including the risks associated with credit, currencies and interest.
- (ii) taking hedging positions against price fluctuations in relation to credit, currencies and interest rates.
- (iii) providing loans, credit or other financial services to clients.
- (iv) managing capitals and preparing reports to investors or to any government authority with similar functions in relation to the supervision or regulation of these businesses.
(b) Insurance Businesses which are related to any of the following:
- (i) Predicting and calculating risks.
- (ii) Insuring and re-insuring against risks and providing insurance services to clients.
- (iii) Underwriting insurance and reinsurance.
(c) Investment Fund Management Businesses which are related to any of the following:
- (i) taking decisions on holding and selling of investments.
- (ii) calculating risks and reserves.
- (iii) taking the necessary decisions on currency and interest rate fluctuations and hedging positions.
- (iv) preparing reports to investors or to any government authority with functions relating to the supervision or regulation of these businesses.
(d) Lease-Finance Businesses which are related to any of the following:
- (i) agreeing funding terms.
- (ii) identifying and acquiring assets to be leased (in the case of leasing).
- (iii) setting the terms and the duration of any financing or leasing.
- (iv) monitoring and revising any agreements.
- (v) managing any risks.
(e) Headquarters Businesses which are related to any of the following:
- (i) taking relevant management decisions.
- (ii) incurring operation expenditures on behalf of the Group.
- (iii) coordinating Group activities.
(f) Shipping Businesses which are related to any of the following:
- (i) Managing the crew (including hiring, paying and overseeing the crew members).
- (ii) Overhauling and maintaining Ships.
- (iii) Overseeing and tracking consignments.
- (iv) Determining the goods that are ordered and their date of delivery, organising and overseeing journeys.
(g) Holding Company Businesses: Exercising all the businesses which are related thereto.
(h) Intellectual Property Businesses which are related to any of the following:
- (i) Intellectual Property Assets including the following:
  - A. In the case of a patent or similar assets, the Core Income-Generating Activity consists of research and development.
  - B. In the case of marketing intangible Intellectual Property Assets or similar assets, the Core Income-Generating Activity consists of branding, marketing and distribution.
- (ii) In exceptional cases (excluding High-Risk Intellectual Property Licensee), the Core Income-Generating Activity may include any of the following:
  - A. Taking strategic decisions, managing and taking risks related to the development of Intellectual Property Assets and the subsequent exploitation of the income generated therefrom.
  - B. Taking strategic decisions and managing and taking risks related to third party acquisition of Intellectual Property Assets and the subsequent exploitation and protection of the income generated therefrom.
  - C. Conducting ancillary business activities through which revenue-generating Intellectual Property Assets are used by any third party.
(i) Distribution and Service Centre Businesses which are related to any of the following:
- (i) transporting and storing of parts, components or goods ready for sale.
- (ii) managing inventories.
- (iii) taking orders.
- (iv) providing consultations or other administrative services.

Article 4 - Regulatory Authorities

Each of the following authorities shall be appointed as a Regulatory Authority hereunder to regulate the following Relevant Activities for the purposes hereof:
- (a) Banking Businesses:
  - (i) Central Bank.
  - (ii) Financial Free Zone Authority in relation to the Banking Businesses that are exercised in the Financial Free Zone.
- (b) Insurance Businesses:
  - (i) Insurance Authority.
  - (ii) Free Zone Authority in relation to the Insurance Businesses that are exercised in the Free Zone.
  - (iii) Financial Free Zone Authority in relation to the Insurance Businesses that are exercised in the Financial Free Zone.
- (c) Investment Fund Management Businesses:
  - (i) Securities and Commodities Authority.
  - (ii) Free Zone Authority in relation to the Investment Fund Management Businesses that are exercised in the Free Zone.
  - (iii) Financial Free Zone Authority in relation to the Investment Fund Management Businesses that are exercised in the Financial Free Zone.
- (d) Lease-Finance Businesses:
  - (i) Central Bank.
  - (ii) Free Zone Authority in relation to the Lease-Finance Businesses that are exercised in the Free Zone.
  - (iii) Financial Free Zone Authority in relation to the Lease-Finance Businesses that are exercised in the Financial Free Zone.
- (e) Headquarters Businesses:
  - (i) Ministry of Economy.
  - (ii) Free Zone Authority in relation to the Headquarters Businesses that are exercised in the Free Zone.
  - (iii) Financial Free Zone Authority in relation to the Headquarters Businesses that are exercised in the Financial Free Zone.
- (f) Shipping Businesses:
  - (i) Ministry of Economy.
  - (ii) Free Zone Authority in relation to the Shipping Businesses that are exercised in the Free Zone.
  - (iii) Financial Free Zone Authority in relation to the Shipping Businesses that are exercised in the Financial Free Zone.
- (g) Holding Company Businesses:
  - (i) Ministry of Economy.
  - (ii) Free Zone Authority in relation to the Holding Company Businesses that are exercised in the Free Zone.
  - (iii) Financial Free Zone Authority in relation to the Holding Company Businesses that are exercised in the Financial Free Zone.
- (h) Intellectual Property Businesses:
  - (i) Ministry of Economy.
  - (ii) Free Zone Authority in relation to the Intellectual Property Businesses that are exercised in the Free Zone.
  - (iii) Financial Free Zone Authority in relation to the Intellectual Property Businesses that are exercised in the Financial Free Zone.
- (i) Distribution and Service Centre Businesses:
  - (i) Ministry of Economy.
  - (ii) Free Zone Authority in relation to the Distribution and Service Centre Businesses that are exercised in the Free Zone.
  - (iii) Financial Free Zone Authority in relation to the Distribution and Service Centre Businesses that are exercised in the Financial Free Zone.
Each Regulatory Authority shall carry out the following tasks within its purview:
- (a) Receiving the Notification, the Economic Substance Report and all the other relevant supporting documents.
- (b) Reviewing the Notification and the Economic Substance Report along with the supporting documents to verify their completeness and authenticity.
- (c) Deciding whether the Exempt Licensee has submitted sufficient information and documents that make him eligible for the exemption prescribed in this Decision.
- (d) Meeting the reporting requirements set out in Article 9 of this Decision.
- (e) Carrying out any other necessary tasks for the implementation of this Decision.
- (f) Carrying out any other necessary tasks for the implementation of any Decision issued by the Minister of Finance or the National Assessing Authority in accordance with this Decision.

Article 5 - National Assessing Authority

The Federal Tax Authority shall be appointed hereunder as the National Assessing Authority to carry out the tasks entrusted thereto hereunder, including:

Deciding whether the Licensee or the Exempt Licensee has met the Economic Substance Requirements in accordance with the provisions of Article 7 of this Decision.
Imposing the administrative fines prescribed in accordance with the provisions of Articles 13, 14 and 15 of this Decision.
Examining the grievances and deciding thereon in accordance with the provisions of Article 17 of this Decision.
Meeting the reporting requirements in accordance with the provisions of Article 10 of this Decision.
Carrying out any other necessary tasks for the implementation of this Decision.
Carrying out any necessary tasks for the implementation of any decision issued by the Minister of Finance in accordance with this Decision.

Article 6 - Fulfilment of Economic Substance Requirements

Subject to the provisions of Clauses 5, 6 and 7 of this Article, and excluding Exempt Licensees, the Licensee shall meet the standards specified here-below to fulfil the Economic Substance Requirements in relation to any Relevant Activity it exercises:
- (a) The Licensee shall exercise a Core Income-Generating Activity in the State.
- (b) The Relevant Activity shall be directed and managed in the State.
- (c) The level of the Relevant Activity shall be taken into account, as follows:
  - (1) There shall be an adequate number of qualified employees who exercise such activity full-time and who are physically present in the State (whether they work for the Licensee or for another entity, and whether they are employed under temporary or long-term contracts).
  - (2) The Licensee shall incur sufficient operation expenditures in the State.
  - (3) There shall be sufficient tangible assets in the State.
The Licensee may assign a third party on its behalf to conduct the Core Income-Generating Activity provided that the following conditions are met:
- (a) The Licensee is able to monitor, and control, the third party’s exercise of such activity and if it is able to prove that it has full control inside the State over the activity assigned to the third party.
- (b) The third party has sufficient employees, expenditures and material assets in the State such that to conduct the assigned Relevant Activity.
- (c) The Core Income-Generating Activity exercised by the third party is conducted in the State.
- (d) The employees, expenditures and tangible assets of the third party are not calculated more than once by more than one Licensee when demonstrating the Licensee’s fulfilment of the Economic Substance Requirements.
The requirements set out in Paragraph (b) of Clause 1 of this Article shall be fulfilled if the following conditions are met:
- (a) The board of directors of the Licensee holds frequent and adequate meetings in the State in respect of the number of decisions required to be made at this level.
- (b) The quorum of the attendees of the board of directors meetings referred to in Clause 3(a) of this Article is present.
- (c) Minutes are prepared for the meetings of the board of directors and are signed by the members present at these meetings.
- (d) The minutes of the meetings of the board of directors referred to in Clause 3(a) of this Article include the strategic decisions on the Relevant Activity that are taken by the Licensee during these meetings.
- (e) The members of the Licensee’s board of directors have the necessary knowledge and expertise to carry out the tasks of the board.
- (f) The minutes of all the meetings and the records of the Licensee are kept inside the State.
If the Licensee is managed by a shareholder or partner or by one or more individual directors, the requirements set out in Clause 3 of this Article shall apply to this shareholder, partner or director(s) as if they were members of the board of directors.
A Licensee whose activity is limited to a Holding Company Business shall be deemed as having fulfilled the Economic Substance Requirements if the following conditions are met:
- (a) It fulfils the requirements for the submission of any data, documents or information required to be submitted to the competent Regulatory Authority under the law governing the Licensee in the State.
- (b) It has sufficient employees and adequate premises to engage in the Holding Company Business.
The Licensee shall not be required to fulfil the Economic Substance Requirements if it has not earned an Income Generated from a Relevant Activity during a given Fiscal Year.
An Exempt Licensee that fails to fulfil the Notification requirements set out in Article 8 of this Decision shall:
- (a) Fulfil the Economic Substance Requirements in relation to any Relevant Activity it exercises for every Fiscal Year during which it fails to fulfil the Notification requirements.
- (b) Comply with all the provisions of this Decision that apply to the Licensee.

Article 7 - Assessing the Fulfilment of the Economic Substance Requirements

The National Assessing Authority may decide that the Licensee has not fulfilled the Economic Substance Requirements during any of its Fiscal Years, provided that such a decision is taken within a period not exceeding six (6) years from the end of the Fiscal Year to which the decision relates.
The period referred to in Clause 1 of this Article shall not apply if the National Assessing Authority was unable to take a decision within the period of six (6) years on account of the Licensee or any other person committing a gross error, fraud or cheating.
For the purposes of Clause 1 of this Article, the National Assessing Authority shall decide that the “High-Risk” Intellectual Property Licensee has failed to fulfil the Economic Substance Requirements during the Fiscal Year unless this Licensee submits sufficient information to convince the National Assessing Authority that it has fulfilled these requirements in accordance with the provisions of Clause 6 of Article 8 of this Decision.

Article 8 - Provision of Information Requirement

Every Licensee and every Exempt Licensee shall submit to the Regulatory Authority a yearly Notification showing the below:
- (a) The Relevant Activity conducted by the Licensee or the Exempt Licensee during the Fiscal Year in question.
- (b) Whether it has earned an Income Generated from a Relevant Activity during the Fiscal Year in question.
- (c) The commencement and end dates of its Fiscal Year.
- (d) Any other information or documents that the Regulatory Authority may request.
The Exempt Licensee shall submit to the Regulatory Authority, along with the Notification referred to in Clause 1 of this Article, all the required information and documents confirming its capacity as an Exempt Licensee, and any other information as requested by the Regulatory Authority.
The Notification referred to in Clause 1 of this Article shall be submitted at the time specified by the Regulatory Authority and in the form and the manner specified by this authority in coordination with the Competent Authority.
The Licensee required to fulfil the Economic Substance Requirements under this Decision shall submit to the Regulatory Authority the Economic Substance Report in accordance with Clause 5 of this Article within a time limit not exceeding twelve (12) months from the end of its Fiscal Year commencing on the first of January 2019 or any other following Fiscal Year.
The Economic Substance Report shall be prepared in the form and the manner authorised by the National Assessing Authority in coordination with the Competent Authority, and it shall include the following information and documents about the Licensee during the Fiscal Year in question:
- (a) The type of the Relevant Activity it exercises.
- (b) The value and type of its Income Generated by the Relevant Activity it exercises.
- (c) The value and type of the operation expenditures and the assets related to the Relevant Activity it exercises.
- (d) The location of the premises of its Activity, if any, and the plant, properties or devices used to conduct the Relevant Activity it exercises in the State.
- (e) The number of full-time employees, their qualifications, and the number of officers in charge of the conduct of the Relevant Activity it exercises.
- (f) The activity that generates a core income for the Relevant Activity it exercises.
- (g) Its financial reports.
- (h) Disclosing whether it has fulfilled the Economic Substance Requirements.
- (i) In case the exercised Relevant Activity constitutes an Intellectual Property Business, disclosing whether it is considered a “High-Risk” Intellectual Property Licensee.
If the Licensee announces that it is engaged in high-risk Intellectual Property Business, it shall provide the National Assessing Authority with the information and the documents proving that it is currently exercising and that it has previously exercised a high level of control over the development, exploitation, storage, protection and improvement of the Intellectual Property Assets with the help of full-time qualified employees who reside permanently, and conduct their activities, in the State with a view to refute the report prepared by the National Assessing Authority under Clause 3 of Article 7 of this Decision. Moreover, it shall submit the following:
- (a) A work plan clarifying its reasons for owning the Intellectual Property Assets in the State.
- (b) Information about the workers, including their level of expertise, the type of contracts concluded with them, their qualifications and the duration of their employment with the Licensee.
- (c) Proof that the decisions related to the Relevant Activity are taken in the State.
If the Licensee appoints a third party to conduct the Core Income-Generating Activity, it shall submit the information proving that it meets the conditions set out in Clause 2 of Article 6 of this Decision.
The Licensee shall provide the National Assessing Authority with any additional information or documents as reasonably requested by the National Assessing Authority to decide on the matter specified in Article 7 of this Decision.
Both the Regulatory Authority and the National Assessing Authority may serve a Notification on the Licensee and the Exempt Licensee to request the submission of any documents or information in the form and within the time limit specified in the Notification for the purpose of implementing this Decision.
Every Licensee and Exempt Licensee required to provide any information or documents under this Decision shall submit such information and documents in English.
Every Licensee and Exempt Licensee that is required to submit any information or documents under this Decision shall keep such information or documents for a period of six (6) years from the date of their submission.

Article 9 - Submission of Information by the Regulatory Authority

Upon receiving the Notification and the Economic Substance Report under this Decision, the Regulatory Authority shall send the Notification, the Economic Substance Report and all the relevant documents in accordance with this Decision to the National Assessing Authority within thirty (30) Working Days from the date of their receipt.
In case the Licensee or the Exempt Licensee fails to submit the Notification, the Economic Substance Report or any document or information related to either of them and required to be submitted under this Decision within the period specified hereunder, the Regulatory Authority shall notify the National Assessing Authority of such failure within a period not exceeding thirty (30) Working Days from the date on which the Regulatory Authority becomes aware of such a breach.
The Regulatory Authority shall submit any information at its disposal to the National Assessing Authority at the latter’s request for the purposes of implementing the provisions of this Decision.
The Regulatory Authority shall provide the National Assessing Authority with all the information it receives in accordance with this Decision about any Exempt Licensee:
- (a) Whose tax residence is located outside the State.
- (b) That is considered a branch of a foreign entity and whose Relevant Activity income is taxable in a territory other than the State.

Article 10 - Submission of Information by the National Assessing Authority

Subject to the Licensee’s right of appeal in accordance with the provisions of Article 17 of this Decision, if the National Assessing Authority decides under Article 7 of this Decision that the Licensee has not fulfilled the Economic Substance Requirements for a specific Fiscal Year, it shall notify the Competent Authority of its decision and shall provide it with the information prescribed in Article 8 of this Decision, and with any other accessible information about this Licensee at the request of the National Assessing Authority.
For a “High-Risk” Intellectual Property Licensee, the National Assessing Authority shall, regardless of whether it has taken a decision under Article 7 of this Decision in respect thereof, submit to the Competent Authority the information at its disposal pursuant to Article 8 of this Decision regarding this Licensee for every one of its Fiscal Years.
The National Assessing Authority shall provide the Competent Authority with all the relevant information it has received about any Exempt Licensee:
- (a) Whose tax residence is located outside the State.
- (b) That is considered a branch of a foreign company and whose Relevant Activity income is taxable in a territory other than the State.
The National Assessing Authority shall notify the concerned Regulatory Authority of its decision to impose an administrative fine or of its decision on a grievance filed against it in accordance with the provisions of this Decision.

Article 11 - Exchange of Information by the Competent Authority

Upon receiving from the National Assessing Authority information indicating that the Licensee has not fulfilled the Economic Substance Requirements for a specific Fiscal Year in accordance with Clause 1 of Article 10 of this Decision, the Competent Authority shall, under an international agreement or convention or any similar international arrangement to which the State is a party, submit the relevant information regarding this Licensee to the Competent Foreign Authority in the country where the Parent Company, the Ultimate Parent Company and the Ultimate Beneficial Owner of this Licensee are domiciled.
Upon receiving from the National Assessing Authority information about a High-Risk Intellectual Property Licensee in accordance with the provisions of Clause 2 of Article 10 of this Decision, the Competent Authority shall, under an international agreement or convention or any similar international arrangement to which the State is a party, submit the relevant information regarding this Licensee to the Competent Foreign Authority in the country where the head office of the Parent Company, the Ultimate Parent Company and the Ultimate Beneficial Owner of this Licensee is located.
Upon receiving from the National Assessing Authority information regarding an Exempt Licensee whose tax residence is located outside the State for a specific Fiscal Year in accordance with the provisions of Clause 3 of Article 10 of this Decision, the Competent Authority shall, under an international agreement or convention or any similar international arrangement to which the State is a party, submit any relevant information about this Exempt Licensee to the Competent Foreign Authority:
- (a) In the country declared by the Exempt Licensee to be its jurisdiction of taxation.
- (b) In the country or territory where the Parent Company, the Ultimate Parent Company and the Ultimate Beneficial Owner of this Exempt Licensee are domiciled.
Upon receiving from the National Assessing Authority information regarding an Exempt Licensee as a branch of a foreign entity whose tax residence is located outside the State for a specific Fiscal Year in accordance with the provisions of Clause 3 of Article 10 of this Decision, the Competent Authority shall, under an international agreement or convention or any similar arrangement to which the State is a party, submit any relevant information about this Exempt Licensee to the Competent Foreign Authority in:
- (a) The country declared by the Exempt Licensee to be its jurisdiction of taxation.
- (b) The country or territory where the Parent Company, the Ultimate Parent Company and the Ultimate Beneficial Owner of this Exempt Licensee are domiciled.
The employees of the Competent Authority, the National Assessing Authority, the Regulatory Authority or any other ministry or government authority, whether federal or local, may not disclose any data, information or documents they have access to or they have in their possession by reason of their discharge of the duties assigned thereto in accordance with the provisions of this Decision, unless such disclosure is necessary for the implementation of any provisions hereof.
The Regulatory Authority and the National Assessing Authority shall provide the Competent Authority with any additional information that the latter may request in the discharge of its duties in accordance with the provisions of this Decision or under an international agreement or convention or a similar international arrangement to which the State is a party.

Article 12 - Cooperation of Other Government Bodies

All the ministries and other government bodies, whether federal or local, shall provide the Regulatory Authority and the National Assessing Authority and/ or the Competent Authority with any data, information or documents regarding the Licensee or the Exempt Licensee that they have in their possession at the request of any of these authorities.
All the ministries and other government bodies, whether federal or local, shall cooperate with the Regulatory Authority and the National Assessing Authority and/ or the Competent Authorities to take the necessary actions for the implementation of this Decision, such as determining the Workplaces of the Licensee or the Exempt Licensee subject of the inquiry and requesting the submission or upgrade of any necessary data or information for the implementation of the provisions of this Decision.

Article 13 - Administrative Fine for Failure to Submit Notification

An administrative fine amounting to twenty thousand (20,000) dirhams shall be imposed for failure of the Licensee or the Exempt Licensee to submit the Notification (and any other relevant information or documents) prescribed in this Decision.
If the National Assessing Authority decides that the Licensee or the Exempt Licensee has committed the violation provided for in Clause 1 of this Article for a given Fiscal Year, it shall notify it of the following:
- (a) That the National Assessing Authority has decided that the Licensee or the Exempt Licensee has failed to submit the Notification in accordance with the provisions of this Decision for this Fiscal Year.
- (b) The grounds of the decision to impose the administrative fine.
- (c) The amount of the administrative fine imposed thereon under this Article.
- (d) The due date of the administrative fine under this Article, provided that it is no less than thirty (30) Working Days from the date of issuing the Notification.

Article 14 - Administrative Fine for Failure to Submit the Economic Substance Report and for Non-Fulfilment of the Economic Substance Requirements

An administrative fine amounting to fifty thousand (50,000) dirhams shall be imposed on the Licensee or the Exempt Licensee if it commits either of the following violations:
- (a) If it fails to submit the Economic Substance Report (and any relevant information or documents) in accordance with the provisions of this Decision.
- (b) If it fails to fulfil the Economic Substance Requirements for any Fiscal Year.
If the National Assessing Authority decides under Article 7 of this Decision that the Licensee or the Exempt Licensee has failed to submit the Economic Substance Report (and any relevant information or documents) in accordance with the provisions of this Decision or has failed to fulfil the Economic Substance Requirements for a given Fiscal Year, it shall notify the Licensee or the Exempt Licensee of the following:
- (a) That the National Assessing Authority has decided that the Licensee or the Exempt Licensee has failed to fulfil the Economic Substance Requirements for this Fiscal Year.
- (b) The grounds for such a decision.
- (c) The amount of the administrative fine imposed on the Licensee or the Exempt Licensee under Clause 1 of this Article.
- (d) The due date of the administrative fine under Clause 1 of this Article, provided that it is no less than thirty (30) Working Days from the date of issuing the Notification.
If the National Assessing Authority decides that the Licensee or the Exempt Licensee that has committed the financial violation provided for in Clause 2 of this Article has committed the same violation in the Fiscal Year following that of the violation, it shall impose thereon an administrative fine amounting to four hundred thousand (400,000) dirhams, and the National Assessing Authority shall in this case issue a Notification to the Licensee or the Exempt Licensee informing it that:
- (a) The National Assessing Authority has decided that the Licensee or the Exempt Licensee has failed to fulfil the Economic Substance Report for the second time in a row.
- (b) The grounds for such a decision.
- (c) The amount of the administrative fine imposed on the Licensee or the Exempt Licensee under Clause 3 of this Article.
- (d) The due date of the administrative fine under Clause 3 of this Article, provided that it is no less than thirty (30) Working Days from the date of issuing the Notification.
- (e) Any other administrative measure taken by the National Assessing Authority, including the suspension, revocation or non-renewal of the Licence issued to the Licensee or the Exempt Licensee. The National Assessing Authority shall notify the competent Regulatory Authority of this decision and the latter shall take the necessary actions to implement it.

Article 15 - Administrative Fine for Submission of Inaccurate Information

The Licensee or the Exempt Licensee shall be liable to an administrative fine amounting to fifty thousand (50,000) dirhams if it submits inaccurate information to the Regulatory Authority or to the National Assessing Authority while being aware that it is not accurate at the time of its submission and if it fails to notify the Regulatory Authority or the National Assessing Authority once it discovers the inaccuracy of such information after submitting it.
If the National Assessing Authority decides that the Licensee or the Exempt Licensee has committed the violation provided for in Clause 1 of this Article for a given Fiscal Year, it shall notify it of the following:
- (a) That the National Assessing Authority has decided that the Licensee or the Exempt Licensee has failed to fulfil the Economic Substance Requirements for this Fiscal Year.
- (b) The grounds for the decision to impose such administrative fine.
- (c) The amount of the administrative fine imposed thereon under this Article.
- (d) The due date of the administrative fine under this Article, provided that it is no less than thirty (30) Working Days from the date of issuing the Notification.

Article 16 - Period of Imposition of the Administrative Fine for the Violation

Without prejudice to Clause 2 of this Article, no administrative fine may be imposed under this Decision after the expiration of six (6) years from the date of committing the violation punishable by such administrative fine.
If the Licensee or the Exempt Licensee is liable for paying an administrative fine under Article 15 of this Decision, the administrative fine may not be imposed after the expiration of twelve (12) months from the date on which the National Assessing Authority becomes aware of the violation.
The provisions for the period referred to in Clauses 1 and 2 of this Article shall not apply in the event that the Licensee or the Exempt Licensee has committed fraud that prevented the National Assessing Authority from imposing the administrative fine thereon within the period prescribed in Clause 1 of this Article or from ordering it to pay same within the period prescribed in Clause 2 of this Article.

Article 17 - Right of Appeal Against the Administrative Fine

Any Licensee or Exempt Licensee may file a grievance with the National Assessing Authority against its decision to impose the administrative fine thereon for any of the following reasons:
- (a) If it has not committed the administrative violation imputed thereto.
- (b) If the administrative fine imposed thereon is not commensurate with the violation.
- (c) If the administrative fine imposed exceeds the limit prescribed for the committed violation in accordance with this Decision.
The National Assessing Authority shall issue a decision determining the grievance procedures in accordance with Clause 1 of this Article including the manner of lodging the grievance and the other procedures related to the examination and adjudication thereof and the notification of the Licensee and the Exempt Licensee of its decision thereon.

Article 18 - Date of Payment of the Administrative Fine

Any administrative fine hereunder shall be paid before or on either of the following dates, whichever is closer:

The date on which the administrative fine falls due under the Notification issued by the National Assessing Authority in accordance with the provisions of Articles 13, 14 and 15 of this Decision.
If a grievance is filed against the decision under Article 17 of this Decision, the date of payment shall be that on which a decision is reached on the grievance or the grievance is withdrawn.

Article 19 - Access to Workplace and Inspection of Work Documents

Any employee authorised by the Regulatory Authority or the National Assessing Authority may inspect any Work Document found at the Workplace and obtain copies thereof.
Any employee authorised by the Regulatory Authority and the National Assessing Authority may have access to the Workplace during working hours for the purpose of exercising the powers prescribed in Clause 1 of this Article.
The powers set out in Clauses 1 and 2 of this Article shall be solely exercised for the purposes of any administrative investigation conducted by the Regulatory Authority or the National Assessing Authority to ensure compliance of any person with the provisions of this Decision.
Both the Regulatory Authority and the National Assessing Authority may, by Notification, request any person during official working hours to provide any Work Document kept at the Workplace for the purpose of enabling the Regulatory Authority and the National Assessing Authority to exercise their powers prescribed in Clause 1 of this Article.
Both the Regulatory Authority and the National Assessing Authority shall work in coordination in case any of their employees are exercising any of the powers set out in Clauses 1, 2 and 3 of this Article.

Article 20 - Implementing Decisions

The Minister of Finance shall issue the necessary decisions for the implementation of any provision hereof.

Article 21 - Abrogation

Shall be repealed aforementioned Cabinet Decision № 31/2019, and its amendments, and Cabinet Decision № 58/2019 as well as any provision that contradicts or is in conflict with the provisions of this Decision.

Article 22 - Publication and Entry into Force of the Decision

This Decision shall be published in the Official Gazette and shall enter into force from the date of its issuance.

4.7 Economic Substance 👉 Ministerial Decision №100 of 2020