UAE Country by country Filing Consideration for MNEs

Background
and Purpose

On 30 April
2019, the United Arab Emirates (“UAE”) Ministry of Finance (“ MoF ”) issued
‘Cabinet Resolution No. 32 of 2019 concerning Regulation of the Submission of
Reports by Multinational Companies’, setting out CbCR compliance obligations
for multinational entity groups (“MNE groups”) based in the UAE.

Almost
simultaneously with the introduction of economic substance regulations, the UAE
further implements international tax standards and joins around 80 other
countries which have implemented the CbC reporting. The impact of this
reporting on international corporations in the UAE cannot be understated.

In the
Framework of the Base Erosion and Profit Shifting (“BEPS”) project of the OECD
and the G20, countries agreed, amongst others, to implement BEPS action 13 in
order to tackle the shortcomings of the international tax system.

This action
prescribes that countries implement legislation requiring multinational
enterprises (MNEs) to report annually and for each tax jurisdiction in which
they do business certain relevant tax related information and exchange this
information with other countries.

Applicability

• Effective
  for fiscal years beginning on or after 1 January 2019 (“FY19”).
• Applies
  to multinational entity groups (“MNE group”) tax resident in the UAE with
  annual consolidated revenues exceeding AED 3.15 billion in the preceding
  fiscal year.
• To
  qualify as an MNE group, the group must have at least two or more entities
  resident for tax purposes in different jurisdictions.

Deadlines

• Notifications
  are due on/before fiscal year-end.
• CbCreport
  is due 12 months after fiscal year-end.
• All
  filing deadlines are aligned with the MNE group’s fiscal year-end.

Filing
considerations

MNE groups with
UAE-based UPEs must submit notifications and file the CbCreport in the UAE.

The UAE
presently has 491exchange relationships with other tax jurisdictions, which
should mitigate the need for secondary filings in other jurisdictions (but this
should be monitored).

Currently, UAE
has active exchange relationships with 49 jurisdictions, all of which are
non-GCC jurisdictions. Additionally, UAE does not have an active exchange
relationship with the Kingdom of Saudi Arabia (“KSA”) or Qatar.

MNE groups with
ultimate parent entities (“UPE”) outside the UAE must submit a notification to
the UAE MoF.

Penalties
for non compliance

Failure to
comply with the CbCR obligations set out in the resolution may result in
penalties being levied on the Reporting Entity as follows:

• Penalty
  of AED100,000 for failure to retain supporting documentation and
  information
• Penalty
  of AED100,000 for failure to provide the competent authority with
  requested information
• Initial
  penalty of AED1m and AED10,000 to be applied daily until a maximum of
  AED250,000 for failure to file the CbCR notification or CbC report
• Minimum
  penalty of AED50,000 to a maximum of AED500,000 for failure to report
  complete and accurate information

Conclusion

The UAE’s
legislation very much mirrors the standards imposed by the OECD which have been
adopted in countries which have already implemented CbC reporting. The UAE is
the third GCC country to implement CbCr reporting after Qatar and KSA had done
so previously. The context of the UAE is slightly different, given the current
absence of Federal Corporate Income Tax. Both Qatar and KSA have a form of
corporate income tax

The Federal Tax
Authority may be interested in the file for VAT purposes and ask tax payers to
reconcile the amounts in the CbC report, as it can do today already with
audited financial statements.

The importance
of the introduction of CbC reporting cannot be understated. The UAE’s important
neighbour, Saudi Arabia, will be very keen to examine the information in the
CbC reports filed by UAE companies to verify whether it is receiving the right
end of the tax portion.

How MSATC can help
– Assistance in CbCR notification and reporting
-Assessment of parameteres to CbCR
-Advisory on bridging the Gaps and;
– Compliance Services