Regulation of the submission of reports by multi-national companies in UAE
The United Arab Emirates (UAE) has introduced Country-by-Country (CbC) Reporting (CbCR) requirements, that will be applicable to businesses that have a legal entity or branch in the country and are members of a multinational enterprise (MNE) group with consolidated annual turnover of more than AED 3.15 billion.The CbC report must be submitted within 12 months of the end of the reporting period. Accordingly, for the financial years commencing on 1 January 2019, the CbC report must be submitted by 31 December 2020.
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MNE Group: Any Group that;
- Includes two or more enterprises the tax residence for which is in different jurisdictions or includes an enterprise that is resident for tax purposes in one jurisdiction and is subject to tax with respect to the business carried out through a permanent establishment in another jurisdiction.
- and having total consolidated group revenue equal to or more than AED 3,150,000,000 (three billion one hundred fifty million dirham) during the Fiscal Year immediately preceding the Reporting Fiscal Year as reflected in its Consolidated Financial Statements for such preceding Fiscal Year.
Constituent Entity: means any of the following;
- Any separate business unit of an MNE Group that is included in the Consolidated Financial Statements of the MNE Group for financial reporting preparation purposes or would be so included if equity interests in such business unit of an MNE Group were traded on a public securities exchange.
- Any business unit that is excluded from the MNE Group’s Consolidated Financial Statements solely on size or materiality grounds.
- Any permanent establishment of any separate business unit of the MNE Group, provided the business unit prepares a separate financial statement for such permanent establishment for financial reporting preparation, regulatory, tax reporting , or internal management control purposes.
Entities that come under the new rule will have to take necessary actions to meet the requirements and review the impact of these rules on the MNE group’s reporting and notification requirements in other countries. The CbC report aims to make it easier for tax authorities to assess high-level risks related to transfer pricing and BEPS for MNE groups.
The Ministerial Resolution No. 32 of 2019 which introduces CbCR rules for MNE groups operating in the UAE, was introduced by the country on 30th April 2019.
The CbC reports include;
- Financial information related to the amount of revenues
- Profits/losses before income tax
- Income tax paid
- Income tax accrued
- Stated capital
- Accumulated earnings
- Number of employees
- Tangible assets other than non-cash or cash-equivalent assets,
- Details about business activities conducted and other disclosures and explanations provided by the MNE, with respect to each jurisdiction in which the MNE operates
A Constituent Entity which is not the Ultimate Parent Entity of an MNE Group shall file Report with the Competent Authority with respect to the Reporting Fiscal Year of an MNE Group of which it is a Constituent Entity, on or before the date specified, if such Entity is resident for tax purposes in the State and one of the following conditions in respect thereof applies:
- The Ultimate Parent Entity of the MNE Group is not obligated to file a Report in its jurisdiction of tax residence.
- The jurisdiction in which the Ultimate Parent Entity is resident for tax purposes has a current International Agreement to which the State is a party but does not have a Qualifying Competent Authority Agreement in effect to which the State is a party for filing the Report for the Reporting Fiscal Year.
- There has been a Systemic Failure of the jurisdiction of tax residence of the Ultimate Parent Entity that has been notified by the Competent Authority to the Constituent Entity resident for tax purposes in the State.
An administrative penalty shall be imposed on the Reporting Entity which fails to comply with the obligations set out in this Resolution as follows:
- Where a Reporting Entity fails to retain the documentation and information required to be collected in the course of meeting its reporting obligations under this Resolution for a minimum period of five (5) years after the date of reporting to the Competent Authority, the Reporting Entity shall be subject to a penalty of one hundred thousand dirham (AED 100,000);
- Where a Reporting Entity fails to provide the Competent Authority with any information requested in accordance with this Resolution, the Reporting Entity shall be subject to a penalty of one hundred thousand dirham (AED 100,000).
- One million dirhams (AED 1,000,000); and ten thousand dirham (AED 10,000) for every day during which the failure continues to a maximum of two hundred and fifty thousand dirhams (AED 250,000). where a Reporting Entity fails to report the information required to be reported under this Resolution on the required Reporting Date or fails to notify the Competent Authority on or before the required reporting date of the intention to file a Report in respect of a certain accounting period.
- The Reporting Entity shall be subject to a minimum penalty of fifty thousand dirhams (AED 50,000) and a maximum penalty of five hundred thousand dirhams (AED 500,000) if the Reporting Entity fails to report the information required to be reported under this Resolution in a complete and accurate manner.
Frequently Asked Questions
Who is required to submit a CbCR notification in the UAE?
The UAE tax resident Ultimate Parent Entity of the MNE Group to which CbCR legislation is applicable (refer FAQ 9 above for thresholds and applicability of UAE CbCR legislation).
Who should be considered as a ‘UAE tax resident entity’ for CbCR purposes?
Based on the existing UAE laws and international tax treaties, an entity should be considered as a tax resident in the UAE if it is incorporated or created under the laws of UAE or has its place of effective management therein.
What is the deadline for submission of the CbCR notification in the UAE?
CbCR notifications must be submitted no later than the last day of the financial reporting year of the MNE. Accordingly, for the MNE Group’s financial year starting on January 1st, 2019, CbCR notification should be submitted in the UAE by no later than December 31st, 2019.
What currency should be used for CbC Reporting purposes?
If separate entity statutory financial statements are used as the basis for reporting, all amounts should be translated to the stated functional currency of the MNE Group. The average exchange rates for the year should be used for currency conversion. The applied rates should be stated in the Additional Information section (Table III) of the CbC Report.
In which language should the CbC Report be submitted in the UAE?
The CbC Report should be submitted in English.
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