Post Registration Compliance Management in UAE- An Overview There are several regulations and compliances that every business working in the UAE needs to adhere to on an annual basis. These mandatory compliances ensure that the business is working in an orderly and legally compliant manner as per the prevailing laws of the country. As business owners and managers, it is very important to be aware of the recent amendments and changes introduced in the regulations that are applicable to your business entity, its shareholders, general managers and its employees. Consequences of non-compliance with the applicable regulations can result in significant financial fines, closure of bank accounts, suspension of business and may even lead to imprisonment. Major Post-Registration Compliances for companies registered in the UAE Following arethe major post-registration compliances that are required to be submitted by all the companies registered in the UAE after the successful incorporation/ registration of a company: Ultimate Beneficial Owner (UBO) submission Purpose: Many countries across the world have laws related to ultimate beneficial ownership (UBOs). The purpose of these legislations is the identification of any illegal activity in the business, such as bribery, corruption and terrorism financing activities. It allows the government, regulatory authorities and other firms doing business with an entity to know about the identity of the UBO. The primary objective of this compliance is to safeguard oneself from engaging with businesses involved in criminal activities. One can get a true picture of who their business partner or client is and their respective business operations. Meaning of UBO: The UBO is the beneficial owner, partner and shareholder of the organisation. An entity’s UBI is someone who: Owns or controls 25% or more of the shares and voting rights in the company; Ultimately owns or controls, either directly or indirectly, 25% or more of the shares or voting rights; Holds power, directly or indirectly, to appoint or remove most of the Board of Directors; Holds the right to exercise or exercises significant control over the legal entity; Exercises ultimate control over the management of the company; or Controls of the legal entity altogether. According to the FATF, a UBO is a natural person who ultimately controls or owns a customer and/or the natural person on whose behalf a transaction is executed. Applicability:All UAE licensed businesses located in both mainland and free zones are required to comply with the UBO regulations of procedures relating to real beneficiaries. Exemptions: The companies that are licensed to operate in the Abu Dhabi Global Markets (ADGM) and Dubai International Financial Centre (DIFC) are not subject to UBO regulations since they have already provided information to ADGM/DIFC about UBOs and are subject to a different set of regulations. Companies that are directly or indirectly owned by the government are excluded from the regulation. Requirements: A register is required to be created of the real beneficiaries and a register of partners or shareholders. The register must contain the partners/shareholders’ details such as name, nationality, place of residence, travel necessary paper or ID card, basis of becoming a real beneficiary and when he acquired and ceased such status. Changes in the details of the UBOs shall be updated within a period of 15 days of the change coming into force. Timeline: Though the prescribed date for submission of the necessary paper is 30th June 2021, the respective licensing authorities are still accepting the registration. Compliance: The first thing to be done by an entity is to obtain a UBO certificate from the licensing authority that is in charge of the registration of the company. Follow the prescribed procedure at the time of forming a new business or onboarding new individuals with substantial ownership. Finally, keep the above-given information updated all the time. Economic Substance Regulations (ESR) Filings Backdrop: The ESR were implemented in the year 2019. The ESR divided the businesses into two, viz. licensee and exempted licensee which helps examine a business’s ESR obligations. Purpose: The reason for this compliance is with respect to the UAE’s commitment to transparency and cooperation in international taxation. Applicability: ESR is applicable to all the onshore and free zone companies that are carrying out business in any of the 9 ‘relevant activities’. ESR categorisation is done on the basis of 9 relevant activities. Compliances: Notification filing and report submission on an annual basis with the regulatory authority within the given timelines. Every year, a licensee has to determine whether it has carried out any relevant activity and earned an income from it. If no income has been earned from such relevant activity, then the licensee has to submit only a Notification and is not required to submit the annual report and further not required to demonstrate economic substance for that particular financial year. On the other hand, if it does earn an income from any of the 9 relevant activities, then it only needs to submit an annual report. Submission of the annual report has to be done within a period of 12 months from the end of the financial year. The licensee has to demonstrate that it has complied with the regulation and in case it has not, furnish the reasons for the same. Along with financial information, some non-financial information is also required. Evidence to be supplied: Along with the submission of the annual report, evidence is also required to be supplied in relation to the occurrence of the board meetings held in UAE, nature and type of expenses, adequacy of full-time employees and their qualification, details of outsourcing etc. External audit: The licensee is also required to conduct a 3rd party evaluation and verification of the books of accounts of the legal activity. Penalties: Failure to submit the ESR notification to the concerned department results in the imposition of penalties to the tune of AED 20,000. Failure to submit ESR annual report to the concerned department will result in penalties to the tune of AED 50,000. On repetition of the same violation in the subsequent year, businesses have to pay AED 400,000 as an administrative penalty. Anti-Money Laundering (AML) Compliance [Registration at goAML portal] Purpose: With a view to tighten anti-money laundering laws and regulations, UAE launched the ‘goAML’ portal for the specified businesses to register themselves before 31st March 2021. Registration is necessary to prevent the attraction of any penalties. Backdrop: A law has been passed by the UAE government known as Anti Money laundering and Combating the Financing of Terrorism and Financing of Illegal Operations (AML law), which enforces some of the recommendations of the Financial Action Task Force (FATF) to increase the effectiveness in identifying and preventing instances of money laundering and terror financing. Registration at goAML: The businesses that fall under the ambit of Designated Non-Financial Business and Professions (DNFPB) have to follow the compliances under the AML law. The ministry of economy has identified that the following business activities fall within the ambit of DNFPB and they need to register themselves at the AML portal: Real Estate Agents and Brokers Businessmen dealing in precious metals and stones Independent Corporate Service providers Independent accountants and auditors The businesses falling in the category of DNFPB are also required to register at the Automatic reporting system for sanctions list under the Committee for Commodities Subject for Import and Export Control. Pre-requisites of registration: Following are the pre-requisites that are required for registration at the goAML portal: Appointment of a Money Laundering Reporting Officer/ Nominates Compliance Officer A valid email address and a valid mobile phone number for the nominated person necessary papers required: The following necessary papers are required for registration with the goAML portal: Authorisation letter from the entity you represent Copy of a valid passport, Emirates ID and resident visa Copy of the Commercial Trade License Password obtained from the SCAM section Penalties: Failure of the designated businesses with the above-mentioned portal within the given timelines may result in the imposition of penalties (from AED 50,000 to AED 5,000,000). It can also result in the revocation of the license. Value Added Tax (VAT) Registration Purpose: VAT is an indirect tax that the UAE has imposed on such businesses if the threshold of their annual taxable supplies exceeds a certain limit. This tax is imposed on the value added to the product or service at every stage of production. It is a destination-based tax. VAT has been effective since 1st October 2018 at the rate of 5% on all goods and services except the exempted ones. Registration threshold: The law makes it mandatory for businesses that are residents and operating in UAE to register themselves if their annual taxable supplies are AED 375,000 and above. There is also a provision for voluntary registration if the annual taxable supplies of a business exceed the threshold of AED 187,000. Administrative penalties will be applicable to those businesses that do not file their returns within the prescribed timelines. Applicability: VAT is applicable to all companies both in the mainland UAE and located in the free zones. Returns: Depending on the income of the business, the businesses are required to furnish the returns on a monthly basis or quarterly basis. Corporate Income Tax: The perception that UAE is a no-tax country has been broken and the government has decided to impose Corporate Income Tax (CIT) from 1st June 2023 onwards. The CIT will be applicable to all the businesses and commercial activities in the mainland UAE at the standard rate of 9% if the taxable profits earned by the company exceed the amount of AED 375,000. Currently, the CIT is applicable only to branch offices of foreign banks and oil and gas companies. Wages Protection System (WPS) registration: Backdrop: The salaries in the private sector is distributed through the Wages Protection System which allows Institutions to pay wages via banks and other financial institutions that have been approved by the Central Bank of UAE. Purpose: This system is monitored by the Ministry of Labour and helps in maintaining a database of payment of wages and ensuring timely and full payment of wages agreed upon between the employer and employee. Applicability: This system is applicable to all the registered institutions both in the Mainland and Free Zone area and across all sectors and industries. Penalties: All those institutions that fail to make the due payment to the employees within the given timeline are denied new work permits by the Ministry.This ban is lifted only when the payment of wages has been made in full to the employee. Audit of the Financial Records For Mainland Companies: As per the law, it is mandatory for the companies registered in the UAE mainland to get their financial accounts audited. However, it is not necessary for these companies to submit the audit report to the registering authority. For Freezone Companies: The audit of free zone companies is dependent on the jurisdiction of the free zone in which the business entity is registered. If their jurisdiction makes it mandatory, then the companies will be mandated to get their financial records audited and submit the audited report to their respective authorities within the prescribed timelines specified by each free zone. Renewal of Licenses Backdrop:The UAE law makes it mandatory for all companies irrespective of their registration location to obtain a trade license before the commencement of the business. Businesses should always obtain a valid business permit or license in the specified geographical entity before starting their business. Renewal: The renewal of the license and the business permits for a particular trade is dependent on the above-mentioned compliances, and only then the concerned authorities shall renew the trade license and the respective business permits to carry on the business without any hiccups.
The major compliances that are required for a business to be undertaken in the UAE or Dubai include Ultimate Beneficial Owner (UBO) submission, ESR filings, Anti-Money Laundering (AML) compliances, VAT registration, Wages Protection System (WPS) registration, Audit of financial records and renewal of licenses and permits.
The Corporate Income Tax (CIT) shall be applicable to businesses from 1st June 2023 onwards in the UAE. The CIT will be applicable to all the businesses and commercial activities in the mainland UAE at the standard rate of 9% if the taxable profits earned by the company exceed the amount of AED 375,000.
The 9 relevant activities that form part of the ESR filings process include the 1. Banking businesses, 2. Insurance business, 3. Investment and Fund Management business, 4. Lease-Finance business, 5. Headquarters business, 6. Shipping business, 7. Holding Companies business, 8. Intellectual Property business, 9. Distribution and Service Centre business.
Failure to submit the ESR notification to the concerned department resulted in the imposition of penalties to the tune of AED 20,000. Failure to submit ESR annual report to the concerned department will result in penalties to the tune of AED 50,000. On repetition of the same violation in the subsequent year, businesses have to pay AED 400,000 as an administrative penalty.
In the case of Mainland-registered companies, it is mandatory for every company to get its accounts audited. However, they are not required to submit the audit report to the department. In the case of Free Zone companies, it is entirely dependent on the rules of the respective Free Zone.
Any person who owns, directly or indirectly, 25% or more voting rights or has significant power to appoint or remove most of the directors, or has significant control over the decision-making in the company or ultimately controls the management of the company is called the Ultimate Beneficial Owner of that company.
The necessary papers required for AML compliances in UAE include an Authorisation letter from the entity you represent, a copy of a valid passport, Emirates ID and resident visa, Copy of the Commercial Trade License and Password obtained from the SCAM section.
The Countries that are registered in the Abu Dhabi Global Markets (ADGM) and Dubai International Financial Centre (DIFC) are not subject to UBO regulations since they have already provided information to ADGM/DIFC about UBOs and are subject to a different set of regulations..
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