Legal support regarding compliance with the economic substance regulation in the UAE

Our Middle East Desk advised a global fast-food chain on complying with the economic substance regulation in the UAE. Our lawyers carried out an audit of the current business model to check how the economic substance regulation (ESR) in the UAE was being complied with and devised an action plan to exclude the risks connected with non-compliance with the ESR in the UAE.

The ways to mitigate the risk suggested to the client included both recommendations as to structuring its business and localising part of the functions in the UAE as well as more finely-honed measures relating to the wording of agreements, the use of opportunities offered by the accounting of IP, and the rebranding of trademarks with the client being registered as the initial owner of the rights to the newly registered trademark.

The main error of the players who enter the UAE market is that they underestimate the content of the ESR rules and the supervisory bodies’ attitude to them. Based on our observations, most companies are currently violating the ESR rules as they have only a formal confirmation of their economic substance in the UAE. If the relevant ESR test is failed in the UAE, a fine of AED 50,000 is imposed in the first year, and AED 400,000 in each subsequent year. Moreover, the Federal Tax Authority (FTA) may suspend, revoke or refuse to renew a company’s licence. Our team’s support helped the client to eliminate those risks.