Navigating Compliance in the UAE Mainland

The United Arab Emirates (UAE) has successfully diversified its economy over the past four decades, creating many international business opportunities across multiple sectors. With a highly flexible government that continuously introduces business incentives at every stage, the UAE has become a favorable destination for startups, established enterprises, and aspiring entrepreneurs.

The UAE has implemented a series of laws to regulate and protect businesses. It can be challenging for organizations to navigate the constantly changing regulations, especially with differences between industries and emirates. 

This poses a big challenge for organizations striving to maintain compliance standards. Non-compliance can have serious consequences, affecting both financial stability and reputation. 

To help businesses stay compliant, staying updated on the latest laws and measures discussed in this article is important.

 Corporate Tax

The UAE has implemented a series of laws to regulate and safeguard businesses. However, navigating the dynamic regulatory landscape, which differs across industries and emirates, can take time and effort for organizations trying to maintain compliance. Corporate Tax Corporate tax is a direct tax imposed on the earnings of corporations and other entities derived from their business activities within a specific period. Starting from their initial financial year beginning on or after June 1, 2023, companies will be liable to pay UAE corporate tax.

Mainland companies in the UAE are now required to pay a flat corporate tax rate of 9% on their taxable income exceeding Dh 375,000. This move is part of the government’s efforts to promote transparency and align with international tax standards.

Compared to free-zone companies, mainland companies have the advantage of being able to operate both locally and globally without any limitations. This means they can tap into the lucrative local market while also exploring opportunities abroad.

Additionally, there have been significant regulatory changes in the UAE that aim to create a more business-friendly environment. One such change is the amendment of the Commercial Companies Law, which now allows for 100% foreign ownership of mainland companies in various sectors. This development helps bridge the gap between mainland and free zone entities, providing more flexibility for foreign investors.

Value Added Tax

The Value Added Tax (VAT) was implemented in the United Arab Emirates (UAE) on January 1, 2018, according to Federal Decree-Law No. 8 of 2017. It applies to all registered businesses in the UAE, whether they operate on the mainland or in free zones.

How VAT Works

VAT is a tax imposed on the supply of goods and services at each stage of the production and distribution chain. 

VAT-exempted goods and services in the UAE

  • Financial Services: Banking, Insurance, and Investment Services
  • Bare Land
  • Local passenger transport
  • Residential Rent
  • Certain educational services
  • Certain healthcare services

VAT-zero-rated goods and services in the UAE

  • International transportation: goods and passengers
  • Exports of goods and services
  • Educational services, supplies, and equipment
  • Investment-based precious metals
  • The first supply of residential buildings

VAT and Mainland Companies

Recently, the UAE has made changes to its Commercial Companies Law, allowing mainland companies in many sectors to have 100% foreign ownership. This move aims to bridge the gap between mainland and free zone entities.

Maintain books of accounts and the annual audit of financial records

According to the UAE Commercial Companies Law (Federal Law No. 2 of 2015), every limited liability company on the UAE mainland must appoint one or more auditors to review the company’s financial records each year. Other types of companies can also choose to have an auditor as per this law. However, these audited accounts don’t need to be submitted to the authorities. 

Audit Requirements under the Corporate Tax Law

Starting from June 1, 2023, with the implementation of the Corporate Tax Law, certain companies or businesses in the UAE need to have their accounts audited in addition to the existing requirements in their respective jurisdictions:

  1. All companies or businesses with annual revenue exceeding AED 50,000,000 (UAE Dirhams Fifty Million only).
  2. All freezone companies that meet the criteria to be considered a “qualifying free zone person” (subject to conditions).

 Record Maintenance for All Businesses

Regardless of whether a company requires a financial statement audit or not, it is mandatory for all businesses operating in the UAE, including free zones, to maintain their financial records for a minimum of five years.

 Economic Substance Regulations

The Economic Substance Regulations (ESR) were implemented in the UAE in 2020. Licenses that conduct relevant activities must:

  1. Submit a notification six months after the financial year ends.
  2. Submit an Economic Substance Report 12 months after the financial year ends.

The following activities are considered relevant:

  1. Banking Businesses
  2. Insurance Businesses
  3. Investment fund management businesses
  4. Lease-Finance Businesses
  5. Headquarters Businesses
  6. Shipping Businesses
  7. Holding company businesses
  8. Intellectual property businesses
  9. Distribution and Service Centre Businesses

Maintain the UBO and shareholder register.

It is important to keep the Ultimate Beneficial Owner (UBO) and shareholder registers up-to-date. If there are any changes to these registers, they must be promptly updated and submitted to the regulatory authorities. It is worth noting that the UBO submission process may vary for each emirate, so it is crucial to submit the required information to the appropriate regulatory authority.

Anti-Money Laundering and Counter-Finance Terrorism

In line with the UAE’s efforts to make companies more transparent, businesses must meet the Anti-Money Laundering (AML) and Counter-Finance Terrorism (CFT) requirements. These requirements are also part of the Know Your Client (KYC) process that banks follow when opening and maintaining a company’s bank account.

Who needs to comply?

Businesses involved in the following activities are required to comply with AML/CFT regulations:

  1. Brokers and real estate agents.
  2. Dealers in precious metals and precious stones.
  3. Independent accountants.
  4. Corporate service providers.

How do I comply?

These businesses must take the following steps:

  1. Register with the goal website.
  2. Report any suspicious transactions through the same platform.

By adhering to these regulations, companies can contribute to the global efforts against money laundering and terrorism financing.

Conclusion 

At BizDaddy, we understand that navigating the complexities of compliance on the mainland can be overwhelming, especially when your primary focus is on growing your business. That’s why our team of seasoned experts is dedicated to ensuring your business stays on the right side of regulations. We handle the intricacies of compliance on the UAE mainland, from understanding the latest laws to implementing best practices, so you can concentrate on what you do best—driving your business forward.

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Our services are tailored to meet the unique needs of your business, ensuring a personalized approach to compliance. Contact us today to learn how we can help streamline your operations, mitigate risk, and provide peace of mind, allowing you to dedicate your energy to growth and innovation. Let us be your trusted partner in navigating the ever-evolving landscape of business compliance.