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A Licensee meets the Economic Substance Test concerning a Relevant Activity in the following cases:-
- The business conducts Core Income-Generating Activity in the country.
- The enterprise is directed and managed in the State concerning that activity, provided the business’s board of directors meets in the country at an adequate frequency having regard to the amount of decisions required at that level.
- A sufficient number of qualified full-time employees concerning that activity are physically present in the country, or adequate level of expenditure on outsourcing to third-party service providers whose activities, employees, disbursement, and premises are in the State, and these are adequate for carrying out the Relevant Activity.
- A sufficient operating expenditure incurred by it in the State or sufficient level of expenditure on outsourcing to third-party service providers whose activities, employees, disbursement, and premises are in the State; and these are adequate for carrying out the Relevant Activity.
- Sufficient physical assets in the State or level of disbursement on outsourcing to third-party service providers in the State, for the activities of the business;
- In the case of State Core, Income-Generating Activity carried out for the relevant Licensee by another business, if it can monitor and control the carrying out of that activity by the other enterprise.
Conditions for Holding Company Business that derives its income from dividends and capital gains
- Complies with the requirement to submit any documents, records, or information to the relevant Regulatory Authority.
- Adequate employees and premises in place for holding and managing the Holding Company Business.
The rule won’t apply to companies that come under the ownership of the government, directly or indirectly. For example, UAE sovereign investment funds and other UAE government-related entities exempt.
- If an entity fails to meet the requirements or if inaccurate information provided to the regulatory authority – Annual administrative penalties of AED 10,000 to AED 300,000 will apply.
- If they fail to meet the requirements for consecutive years – The penalties will increase and might force the authorities to suspend, revoke, or deny the renewal of an entity’s license.