Adequate economic substance in the UAE refers to the presence of a physical presence and operations in the country that are sufficient to justify the tax benefits that a business may be entitled to. This can be demonstrated by having a physical office, employees, and a management team in the UAE.
There are a number of ways to maintain substance in the UAE for tax benefits. These include:
*Having a physical office: A physical office is a key indicator of substance in the UAE. The office should be located in a commercial area and should be staffed by employees who are responsible for the day-to-day operations of the business.
*Having employees: Employees are another important indicator of substance in the UAE. The employees should be qualified and experienced in the business’s activities.
*Having a management team: A management team is essential for the day-to-day operations of a business. The management team should be responsible for making decisions about the business and ensuring that it complies with all applicable laws and regulations.
*Carrying out activities in the UAE: The business should carry out activities in the UAE that are related to its core business. These activities could include marketing, sales, research and development, or customer support.
*Having financial transactions in the UAE: The business should have financial transactions in the UAE, such as bank accounts and payments to suppliers and employees.
By maintaining substance in the UAE, businesses can demonstrate that they are operating in the country for legitimate purposes and are entitled to the tax benefits that are available.
Here are some of the tax benefits that businesses may be entitled to if they maintain substance in the UAE:
*Reduced corporate tax rate: Businesses that are considered to have adequate substance in Free zones in the UAE may be eligible for a reduced corporate tax rate of 0%.
*Zero rate of withholding taxes: Businesses that are considered to have adequate substance in the UAE may have Zero rate of withholding taxes on certain payments, such as payments to non-resident suppliers and employees.
*Access to double taxation treaties: Businesses that are considered to have adequate substance in the UAE may be able to access double taxation treaties with other countries, which can reduce their tax liability.
It is important to note that the requirements for maintaining substance in the UAE are complex and may vary depending on the specific circumstances of the business. Businesses should seek professional advice to ensure that they are compliant with the applicable laws and regulations.
Please reach out to Hallmark International Auditors for guidance on ensuring appropriate economic substance, appointing directors, and other best practices in accordance with UAE regulations and legal requirements.