The UAE acknowledges that businesses vary in size and nature, and what is adequate and appropriate will depend on the nature and level of activities carried out, and the level of income earned by the Licensee. The Regulations therefore do not provide a “minimum" standard for what is considered “adequate" or “appropriate".
The FTA is expected to take a pragmatic approach when assessing whether a Licensee has met the Economic Substance Test, recognizing that the type and level of activity of a Licensee may fluctuate during the course of a financial period and from year to year.
Substance is achieved according to a number of criteria.
An adequate number of board meetings (or equivalent) should be held in the UAE.
What is considered an adequate number of board meetings will depend on the nature of the Relevant Activity being undertaken by the Licensee, but for each board meeting held in the UAE:
• A quorum of directors must be physically present in the UAE; and
• Meeting minutes must be maintained and signed in the UAE; and
• Directors attending the board meeting must have the necessary skills and expertise to discharge their fiduciary duties.
A Holding Company Business is not required to be directed and managed in the UAE, except where this is a requirement of the relevant licensing authority.
Employees who perform the CIGAs of a Licensee would in principle need to be resident in the UAE.
Non-resident employees or other persons would count towards the economic substance of a Licensee in the UAE only if:
(i) the relevant activities are performed while the individual is physically present in the UAE and under the direction of the Licensee, and
(ii) the Licensee bears the relevant costs of the non-resident individual.
A Licensee can outsource any or all of its CIGAs so long as the outsourced activities are performed in the UAE.
This means that a Licensee can use the following UAE based resources to satisfy the Economic Substance Test:
(i) employees, and
(ii) physical assets (including premises) of third parties or related entities
A Licensee cannot outsource “directed and managed", as the Licensee is required to demonstrate oversight and control of its Relevant Activity in the UAE.
Activities that are not CIGAs (e.g. back office functions or specialist advice that cannot be obtained in the UAE), can be outsourced to related parties or third party service providers that are located outside the UAE without adversely impacting the economic substance of the Licensee in the UAE.