Despite the fact that businesses are increasingly accustomed to VAT in the UAE, the implementation of AML, ESR, and UBO regulations in Dubai has drastically altered business setup.
In the United Arab Emirates (UAE), regulators (such as the Ministry of Economy (MoE), Dubai Financial Services Authority (DFSA), and Central Bank of the United Arab Emirates (CBUAE)) have developed and shaped regulatory policies and landscapes for companies based on a variety of approaches. The regulatory landscape is complex and subject to constant change because of regulatory gaps, local regulatory approaches, and overlapping jurisdictions of enforcement agencies across the seven emirates.
UAE's regulatory environment for Designated Non-financial Business and Professions, or DNFBPs, has recently and will continue to experience a rapid change in the near future, making it the most competitive country in the MENA region. The UAE's regulators constantly update financial and technological regulations to keep up with the country's rapid expansion.
Over the past few years, DNFBPs have been faced with increasing regulatory burdens, and this trend continues. It is important to review and revise business processes on a regular basis from a compliance perspective. The challenge of maintaining compliance resources necessary for small and medium-sized businesses is particularly challenging.
Are you aware that UBO legislation is applicable to all businesses in the UAE? That's right, you have read that correctly. In spite of this, a lot of business owners are unaware of the law and face fines. Similarly, the owners of businesses sometimes make the mistake of incorrectly registering for ESR, not knowing what the law is and whether it applies to them under the ESR legislation.
It's been more than 3 years since UAE introduced and implemented VAT legislation. However, the VAT laws that apply to businesses are still not widely known. In such cases, companies end up paying penalties for either registering incorrectly, exceeding the VAT threshold, and not registering, or even registering late. Penalties for non-compliance with UAE VAT range from AED 1,000 to AED 50,000.
In a similar fashion, companies in the UAE lack knowledge of AML laws and how to best comply. Companies not implementing a comprehensive AML & CFT policy are being actively penalized. Dubai has stepped up its efforts to fight money laundering. Earlier this year, the Dubai Misdemeanor Court convicted eight individuals and three companies for cyber fraud and laundering amounting to AED 14 million or $3.8 million in stolen funds. When developing a compliance program for AML, institutions should consider not only the efficiency of their internal detection systems and controls, but also the risk posed by their customers and clients.
In the past, foreign and local investors seeking to set up their businesses in Dubai were more concerned about the cost and availability of business setup (multiple free zones and mainland). Now, the investors must carefully consider factors such as Economic Substance Regulation (ESR), Ultimate Beneficial Ownership (UBO) regulations, and Anti-Money Laundering (AML) regulations before selecting office facilities, legal structures, and business activities. It is vital that companies and entrepreneurs learn what ESR laws entail before jumping into the UAE market since changing office status from a small office to a big office or a board of directors' presence in the UAE can be a complicated process.
The UAE requires every taxable entity and person to maintain accurate and current financial records by recording its financial transactions. To be able to identify business transactions and review VAT charges or payables, records must be kept in a manner that allows the FTA to review them.
The taxable entity is required to maintain accounting records and filing records, as well as other documents, according to tax procedures, for a period of at least five years. In the UAE, all entities are required to keep appropriate books of account. The requirement applies even to vendors that are unregistered for VAT.
Tax procedures have been published by the UAE Federal Tax Authority (FTA) to require VAT registration and ongoing compliance by taxable entities in the UAE, effective 1 January 2018. There are various thresholds and deadlines for registration that have been outlined by the FTA.
In response to a wide variety of ML/TF requirements in the UAE, our practice has provided clients with important expertise worldwide. Our AML & Regulatory Compliance programs can assist your company in assessing, implementing, upgrading, and testing your policies to reduce its exposure to money laundering and terrorist financing risks as well as regulatory risks. Moreover, our compliance remediation services will help our clients resolve compliance problems when they occur.
Our UAE Compliance Services Include: