The Regulations apply to Licensees that carry out any of the following Relevant Activities.
This article focuses on identifying the criteria for determining the types of activities that fall into the Holding, Headquarter, IP & Services segments since the other activity types are self-explanatory.
A UAE entity is considered engaged in a Holding Company Business if it:
a) Only holds equity interest(s) in juridical person(s); and
b) Only earns dividend and capital gains from its equity interest(s)
A UAE entity that holds other assets or earns other forms of income will not be considered a Holding Company Business.
Where the holding of such other assets or the performance of other commercial activities constitute a different “Relevant Activity" (e.g. a Lease-Finance Business), the UAE entity would be subject to the Regulations in respect of that other Relevant Activity.
Although a Holding Company Business is subject to reduced substance requirements, it must still meet the following requirements:
c) Comply with existing reporting / compliance requirements under the regulations applicable to the Licensee; and
d) Have adequate employees and physical assets (e.g. premises)
A Holding Company Business does not require to be “directed and managed" in the UAE (subject to each Regulatory Authority's own regulations) or to demonstrate adequate expenditure in the UAE.
A UAE entity that provides services to other foreign group entities, and through the provision of such services:
• has taken on the responsibility for the overall success of the group; or
• is responsible for an important aspect of the group's performance.
A group's corporate structure is not relevant in determining whether a UAE entity within the group is engaged in a Headquarter Business.
Whether an entity is engaged in a Headquarter Business is entirely dependent on the nature of the services provided to foreign group companies.
A “Distribution and Service Centre" Business refers to two distinct activities that are covered under one “Relevant Activity" heading.
A UAE entity is considered engaged in a Distribution Business if it:
a) Purchases goods from a Foreign Connected Person; and
b) Distributes those goods
A UAE entity is considered engaged in a Service Centre Business if it:
c) Provides services to a Foreign Connected Person.
The economic substance requirements for a Distribution and Service Centre Business are applicable to UAE entities whose main activity is distribution and/or service centre operations.
A UAE entity is considered engaged in a Lease-Finance Business if it offers credit or financing for any kind of consideration.
Providing credit includes making loans and entering into other financing arrangements such as hire purchase agreements and finance leases.
Licensees engaged in Banking, Insurance, Headquarters and Investment Fund Management Business may also perform lease or financing activities as a normal part of their business operations.
A UAE entity that makes a loan or provides any other form of credit to a UAE or foreign group company for consideration (e.g. interest) will be considered engaged in a Lease-Finance Business.
All of the following conditions must be met for an IP Business to be considered as “High Risk":
1. The Licensee did not create the IP asset which it holds for the purposes of its business;
2. The Licensee acquired the IP asset either from either:
2.1 A Connected Person, or
2.2 In consideration for funding research and development by another person situated in a country other than the UAE;
3. The Licensee:
3.1 licenses the IP asset to one or more Connected Persons, or
3.2 otherwise generates income from the asset in consequence of activities performed by Foreign Connected Persons.