UAE Corporate Compliance Law

Corporate compliance in the United Arab Emirates (UAE) is a multifaceted framework designed to ensure that businesses operate transparently, ethically, and in accordance with both local and international regulations. This framework encompasses various laws and guidelines that govern company formation, financial reporting, taxation, and other critical aspects of business operations.

Compliance Audit Requirements

• Mainland Companies:
• • Must have their financial accounts audited by a licensed auditor.
  • Required to maintain financial records for a minimum of five years.
• Free Zone Companies:
• • Often have differing deadlines, with compliance audit reports due within 3 or 6 months from the end of the financial year, or upon licence renewal.

Economic Substance Regulations (ESR)

Economic Substance Regulations (ESR) ensures that companies engaging in specific activities maintain an adequate economic presence in the UAE. 

Applicable to businesses engaged in Banking, Insurance, Investment Fund Management

• Lease-Finance, Headquarters, Shipping
• Holding Company and Intellectual Property Business
• Distribution and Service Centre Business

Compliance Measures: Companies must pass tests such as the Directed and Managed Test, Core Income Generating Activities (CIGA) test, and an Adequacy Test.

Corporate Tax: Introduced in June 2023, with a standard rate of 9% on business profits exceeding AED 375,000.

Reporting: Annual notifications and reports are required—notifications within 6 months and detailed reports within 12 months of the financial year.

Ultimate Beneficial Owner (UBO) Regulations

Companies in UAE must maintain registers detailing of:

• Shareholders
• Beneficial owners
• Nominee directors
• Copies of critical documents and UBO forms

Timelines: Any changes must be reported to the relevant authority within 15 days.

Value Added Tax (VAT)

Value Added Tax (VAT) in UAE was Implemented on 1 January 2018 at a standard rate of 5%.

Registration Thresholds:

• Mandatory for taxable supplies and imports exceeding AED 375,000 per annum.
• Optional for businesses with supplies over AED 187,500.

VAT returns must be submitted monthly or quarterly, with timely payments to avoid penalties.

AML Regulations in UAE

In the UAE, Anti-Money Laundering (AML) regulations are designed to combat financial crimes and ensure the integrity of the financial system. These regulations impose specific obligations on both financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs).

AML Regulations for Financial Institutions

Financial institutions in the UAE, including banks, insurance companies, and exchange houses, are subject to stringent AML laws. Key requirements include:

Customer Due Diligence (CDD): Institutions must verify the identity of their clients, assess the nature of the business relationship, and monitor transactions for suspicious activity.

Suspicious Transaction Reporting (STR): Financial institutions are obligated to report any transactions that raise suspicion of money laundering or terrorist financing to the UAE's Financial Intelligence Unit (FIU) via the goAML portal.

AML Regulations for Designated Non-Financial Businesses and Professions (DNFBPs)

DNFBPs encompass a diverse range of sectors that, due to the nature of their services, are susceptible to money laundering risks. In the UAE, DNFBPs include:

• Real Estate Agents: Professionals involved in property transactions.
• Dealers in Precious Metals and Stones: Businesses trading in high-value commodities.
• Lawyers, Notaries, and Other Legal Professionals: Individuals offering legal services that may involve financial transactions.
• Accountants and Auditors: Professionals providing financial services and advice.
• Corporate Service Providers and Trust Companies: Entities involved in company formation and management services.

For DNFBPs, the UAE's AML obligations are outlined in Federal Decree-Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations.

These businesses must register in the GoAML system and report any suspicious transactions promptly.

Country-by-Country Reporting (CbCR)

CbCR requires large MNEs to provide a detailed breakdown of their global operations, including revenue, profits, taxes paid, and other economic indicators, segmented by jurisdiction. This initiative seeks to ensure that profits are reported where economic activities occur, thereby preventing tax avoidance through profit shifting.

Country-by-Country Reporting (CbCR) is a component of the Organisation for Economic Co-operation and Development's (OECD) Base Erosion and Profit Shifting (BEPS) Action Plan 13, aimed at enhancing corporate transparency in multinational enterprises (MNEs). The United Arab Emirates has incorporated CbCR into its regulatory framework to align with international tax standards.

Requirements

In the UAE, CbCR obligations apply to MNE groups that meet the following criteria:

• Ultimate Parent Entity Residency: The ultimate parent entity of the MNE group is a tax resident in the UAE.
• Consolidated Revenue Threshold: The consolidated revenue of the MNE group equals or exceeds AED 3.15 billion (approximately USD 858 million) in the preceding financial year.

Compliance Measures

UAE-headquartered MNEs falling under the CbCR mandate must adhere to the following:

• CbC Report Submission: File a comprehensive CbC report with the UAE Ministry of Finance within 12 months following the end of the reporting fiscal year. For instance, if the fiscal year ends on 31st December 2022, the report is due by 31st December 2023.
• Notification Requirement: Submit a notification to the Ministry of Finance by the last day of the reporting fiscal year, confirming whether they are the reporting entity or identifying the entity responsible for filing the CbC report.

Penalties for Non-Compliance

Failure to comply with CbCR requirements can lead to significant penalties, including:

• Failure to Submit Notification: An initial fine of AED 1,000,000, with an additional AED 10,000 for each day the failure continues, up to a maximum of AED 250,000.
• Failure to File CbC Report: A fine ranging from AED 500,000 to AED 5,000,000.
• Failure to Maintain Documentation: A fine of AED 100,000.

To mitigate risks, MNEs are advised to establish robust internal controls and reporting mechanisms, ensuring timely and accurate compliance with CbCR obligations. Engaging with tax professionals can provide valuable guidance in navigating these complex requirements.

Wage Protection System (WPS)

The Wage Protection System (WPS) is an electronic salary transfer system introduced in the United Arab Emirates (UAE) in 2009. It is developed collaboratively by the Ministry of Human Resources and Emiratisation (MoHRE) and the Central Bank of the UAE.

The primary purpose of WPS is to ensure that employees in the private sector receive their agreed-upon wages in a timely and complete manner. This initiative safeguards workers' rights and enhances transparency in the employer-employee relationship.

Implementation: Employers are required to process salary payments via authorised banks or exchange houses.

Bottom Line

Corporate compliance law is indispensable for modern businesses. Whether it involves rigorous audit requirements, maintaining detailed registers, or adhering to specific regulatory frameworks like those in the UAE, companies must invest in comprehensive compliance programmes. 

Such diligence not only minimises risks but also fosters an environment of transparency and ethical conduct. Embracing corporate compliance law ultimately contributes to sustainable growth and robust stakeholder confidence, proving that adherence to legal standards is not just a necessity, but a strategic advantage in today’s competitive business landscape.

By understanding and implementing these guidelines, organisations can ensure that their practices are both legally sound and aligned with international best practices, paving the way for long-term success.