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14.08.2019: Client News Alert, ESR etc.

This News Alert information could be useful, maybe essential for your business activities in the United Arab Emirates. Please don’t hesitate to contact us for further information, backgrounds and discussions.


Economic Substance Regulation – the BEPS After Burner

With Cabinet Resolution No. 31/2019 (resolved 31/04/2019 and published 11/06/2019) the UAE finalized the implementation of Economic Substance Regulation related to

Testing / Reporting / Acceptance or Rejection of
(domestic) Economic (effective) Substance
of Mainland and Free Zone Entities in various License Activities

as an obligation due to the country’s signing of the BEPS Transparency Framework, here especially BEPS Action 5 on Harmful Tax Practices.

Please consider to read more details in the following article: ESR – the BEPS After Burner.

The implementation should be seen as immediate and you should build according action into your time frame, since the first fiscal year under this new ESR Regime is already the current year – 2019! We see the UAE ESR as a massive change of the business environment, not only for the obvious listed license activities, but especially also for all related “connected” Consulting and Administration Services (“Service Centers”).

MCI CLT developed for affected entities a 2tier ESR Rehearsal Procedure, which is explained in a separate MCI Whitepaper. We allowed us to attach it, but you can also download it from our server:

MCI201908-UAE-ESR-Rehearsal

We recommend with view to the narrow timelines immediate review.


UAE Free Zones start with Legal Execution of Claims including Issuance of Travel Bans!

Common practice of many UAE Free Zones is since some years to threat along with license renewal or renewal expiry notifications their licensees (you) with legal consequences in case of non-action / non-payment.

They vary from legal execution of claims via court execution and debt collection activation up to the issuance of travel bans (entry / exit / transit).

MCI CLT has since this month the first ever seen case where a Free Zone Authority indeed initiated legal executions.

The case, roughly:

Licensee (client) did neither renew, nor cancel his license in the Free Zone so that year by year claims for the full license fees (!) and facility rents (!) accumulated along with the usual late payment and penalty fees. The Free Zone Authority brought these accumulated claims – after all an amount above 70,000 AED – to legal execution by issuing a Travel Ban and an INTERPOL Red Note against the manager in the license. Since any Free Zone Authority is a Government Division, there is no need to stipulate the claim in front of a civil court. More or less comparable with the acting of German “Finanzamt” issuing their execution titles autonomously.

The manager, arriving with international flight in Dubai International Airport, has been detained on the spot and sits since then in Al Aweer Jail.

This case leads to the following clear recommendations how to maintain an own Free Zone Company in UAE:

  1. Maintain the regular license renewal due in time, alone to avoid additional hassles including late renewal fees and penalties. While most Free Zones in UAE grant for the License Renewal itself grace periods, the company’s Immigration File / Establishment Card causes immediately penalties when renewed delayed.
  2. If you decide to cease operations of your Free Zone Company: Initiate – also due in time, latest per the license renewal date – the liquidation and license cancellation of the company. This procedure gets finished with issuance of a Deregistration or License Cancellation Certificate by the Free Zone Authority. These are documents protecting you even in case of error claims from Free Zones against you.
  3. It is common practice at UAE airports that existing travel bans are even being executed in their International Transit Areas. Having such a Travel Ban, you don’t need to enter the country – a stopover for transit bears the same risk of detention!

Feel free to contact MCI CLT in case of any issues with renewal, non-renewal, liquidation, cancellation, overdue action etc. We perform not only frequent license renewals, but also liquidations and license cancellations. Here also, if needed, with delivery of liquidators.

In actual execution cases we can investigate for example if it already came to travel bans and recommend frequently to negotiate with claiming Free Zone Authorities about a mutual solution. E.g. we don’t see it as “mandatory” that in case of overdue renewals all license fees and all rental charges simply continue to accumulate; and negotiate in such cases with the concerned Free Zone Departments accordingly in your own interest.

Martin Kraeter, CEO

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