New AML steps to ensure strict compliance
The Ministry of Economy announced the extension of the grace period for registration in its systems to combat money laundering until March 31, 2021, and warned that companies that fail to register would be subject to penalties including suspension of licences and closure
The new initiatives announced by the UAE, which are in line with the government’s ongoing efforts to combat money laundering crimes, will help ensure strict compliance with the anti-money laundering law (AML) and enhance the economy’s ability to achieve sustainable growth, the Ministry of Economy said.
The latest move by the Ministry of Economy is in accordance with the Cabinet Resolution No. (16) of 2021 regarding a list of types of violations and administrative fines for such violations with regard to combatting money laundering and terrorism financing.
The list includes 26 types of violations and stipulated fines that range from Dh50,000 to up to Dh1 million, which could be doubled up to Dh5 million in certain cases.
In a statement, the Ministry of Economy announced the extension of the grace period for registration in its systems to combat money laundering until March 31, 2021, and warned that companies that fail to register would be subject to penalties including suspension of licences and closure.
The ministry called on companies practicing in four main categories — including brokers and real estate agents, dealers of precious metals and gemstones, auditors and corporate service providers — to enhance their awareness and knowledge on the risks of money laundering and keep pace with the government’s efforts in this regard.
The first step to be taken by these companies is to register on the Financial Intelligence Unit (goAML) and on the Committee for Commodities Subject to Import and Export Control system (Automatic Reporting System for Sanctions Lists).
“Following their registrations on these two systems, they should adopt other measures related to the two systems in accordance with the provisions of the Decree-Law, its implementing regulations and the relevant decisions.”
The Ministry clarified that the grace period for registering on the two systems has been extended until March 31, 2021, and that the companies that fail to do so before this date will be subject to penalties, including suspension of the license and closure of the facility.
In addition, the ministry underlined the significance of completing the post-registration procedures and measures to avoid the fines set by the Cabinet Resolution No. 16 of 2021.
Safeya Al Safi, director of the Anti-Money Laundering Department, MoE, said all concerned companies should establish internal policies, procedures and controls to avoid money laundering risks in accordance with the measures set forth by the executive regulations of the law.
Al Safi said the measures reflect the UAE’s keenness to continuously develop its economic legislation to enhance its competitiveness as a safe and stable global business destination.
The list of violations mentioned in a Cabinet resolution includes three types with a fine of Dh1 million each. These include dealing with fake banks; opening or maintaining bank accounts with fake names or numbers without the names of their owners; and failure to take measures related to clients listed on international or domestic sanctions lists, prior to establishing or continuing a business relationship.
The list includes five violations with a fine of Dh200,000 each; seven violations with fines of D100,000 each; and 11 violations carrying fines of Dh50,000 each.
In terms of administrative fines and the grievance mechanism, the resolution states that the Ministry shall notify the violators of the Designated Non-Financial Businesses and Professions (DNFBPs) included in the administrative fine decision signed on him within 15 days from the date of its issuance.
The violator has the right to grievance against the decision of the administrative fine to the minister or whoever he authorises within 15 days from the date of his notification of the decision or his knowledge of it, the MoE statement said.
Strict adherence to ESR requirements necessary, experts say
Companies across the UAE need to be up to date and comply with the UAE’s economic substance regulations (ESR) unless they want to incur heavy fines for their failure to comply, experts have said.
In a recent webinar organised by the Dubai Chamber, in collaboration with Al Tamimi & Company, experts highlighted the latest developments and provided guidance with respect to the economic substance regime and compliance requirements. The webinar, titled ‘Key Aspects of Economic Substance Regulations’, noted that the UAE has issued the Economic Substance Regulations in April 2019 and followed them with an updated guidance on relevant activities by the Ministry of Finance to help businesses to demonstrate economic presence in the UAE.
The UAE adopted new economic substance regulations in Cabinet Resolution No. 31 of 2019. These regulations provide that a company engaged in one of a number of specified sectors must have sufficient economic substance in the territory to access the territory’s tax regime. The changes were in response to pressure from the EU on a number of territories, following recommendations from its EU Code of Conduct Group, and apply for financial years starting on or after January 1, 2019. The key activities identified by the European Commission Code of Conduct Group are: banking, insurance, fund management, financing and leasing, shipping, intellectual property, collective investment vehicles, and holding companies that generate income from any of these key activities.
Shiraz Khan, head of Taxation at Al Tamimi & Company, said that tax is a key revenue generation for many countries that don’t have an abundance of natural resources. “These countries generally rely on taxes to fund their public expenditure.”
One of the biggest concerns during the 2008 downturn, he said, revolved around tax evasion. “Many international companies around the world, with the advent of globalisation, were essentially operating in multiple countries and moving money from high tax jurisdictions into low tax jurisdictions and therefore paying less tax as a result.”
The UAE Ministry of Finance (MoF) in August 2020 announced the details of the Cabinet Resolution No. (57) of 2020 concerning Economic Substance Regulations. The Resolution was issued in consultation with the Organisation for Economic Cooperation and Development (OECD) and the European Union Code of Conduct Group, in order to direct companies that engage in one or more relevant activities. The resolution amended and repealed the Cabinet of Ministers Resolution No. (31) of 2019 concerning Economic Substance. Under the resolution, the UAE Federal Tax Authority (FTA) was appointed as the National Assessing Authority for the purposes of the UAE Economic Substance Regulations.
According to the resolution, the definition of a Licensee was amended to be limited to juridical persons and unincorporated partnerships that are registered (whether by way of commercial/trade license or other form of permit) to carry out a Relevant Activity. Natural persons, sole proprietorships and other business forms that are not juridical entities are no longer within the scope of the UAE economic substance regulations.
Noff Al-Khafaji, senior associate, Corporate Structuring at Al Tamimi & Company, noted that the UAE Ministry of Finance, in May 2020, issued a Covid-19 advisory extending the notification filing deadline and consideration of the impact of the pandemic on businesses. In January 2021, the MoF announced that the December 31, 2020 filing deadline for ESR notification and report (if applicable) was extended to January 31, 2020. Failure to provide notification and any relevant information or documentation will result in a Dh20,000 fine, she said. Also, providing inaccurate information will result in a Dh50,000 fine. Failure to submit an ES report can result in a fine of Dh50,000 in the first year, and a fine of Dh400,000 in the second consecutive year of failure.
Owner of multiple ‘sole firms’ needs just one tax registration
The UAE’s Federal Tax Authority (FTA) clarified on Monday that an individual (natural person) owning multiple sole companies is required to obtain only one tax registration for all of them, and not for each one separately.
The FTA said in a statement that a sole establishment (sole proprietorship) is a legal form of business which is 100 per cent owned by a natural person, and it does not have a legal personality independent of its owner, as the sole business and its owner are considered to be the same person.
This announcement was issued in a new public clarification regarding the VAT registration of sole establishments, which recorded a 1.3 per cent surge to 304,948 at the end of January month-on-month, reflecting the robust activity of the sector, which recently attracted many investors from both inside the country and abroad.
The National Economic Register’s recent figures show that relevant authorities issued over 4,000 new licences for sole establishment around the country in January 2021.
According to statistics, sole proprietorship account for nearly 41 per cent of total commercial licences of 740,717 at the end of January.
Abu Dhabi, Dubai and Sharjah account for 78.6 per cent of the total sole establishments operating in the country.
The FTA clarification on tax registration seeks to educate people with the aspects of the tax rule which need simplified explanations, “enabling them to apply the tax principles accurately and efficiently,” the tax authority said.
The FTA clarified that the sole proprietorship rule does not apply to a One-Person Company LLC or other similar legal entities, which are seen as “distinct and separate legal persons” from their owners (unless the applicable legislation treats such entity and the natural person as the same person). For the avoidance of doubt, it should be noted that a legal person (e.g. a company) cannot own a sole establishment.
In certain cases, tax registrations by taxpayers are reviewed with regards to sole establishments and such persons will be informed of the corrective measures to be taken, if needed, the FTA explained.
The tax authority noted that the taxable supplies made by a natural person, in addition to his sole establishment(s), must be considered collectively in order to determine whether the person exceeded the mandatory VAT registration threshold of Dh375,000.
The FTA said the registrant must inform the FTA of any undeclared output tax by submitting a voluntary disclosure in accordance with Federal Law No. 7 of 2017 on Tax Procedures, for example where the registrant disregarded any of his sole establishments or taxable supplies made in his personal capacity for VAT purposes. “This includes instances where a person failed to register for VAT on the basis that the mandatory VAT registration threshold was not exceeded on a stand-alone basis by that natural person or his sole establishment(s).”
A natural person is also required to notify the FTA if it failed to register for VAT and take the necessary corrective action to account for any outstanding dues.
Asian stocks set for strong start after day of gains on Wall Street
The Biden administration is expected to push through a nearly $2 trillion US fiscal stimulus plan.
Asian markets were set to rise on Thursday after US stocks closed at record highs on hopes that newly inaugurated US President Joe Biden would put in place further economic stimulus to offset damage wreaked by the Covid-19 pandemic.
“Asian stocks are primed to follow their US peers higher on optimism that US federal spending will revive growth and corporate earnings,” said Ryan Felsman, a senior economist at CommSec in Sydney. “That’s all pointing to a positive day in Asia.”
The Biden administration is expected to push through a nearly $2 trillion US fiscal stimulus plan.
Felsman said tech stocks in Asia may also rise in response to positive news from Netflix Inc, whose shares surged 16.85 per cent after the company said it would no longer need to borrow billions of dollars to finance its TV shows and movies.
MSCI’s gauge of stocks across the globe gained 0.07 per cent.
Australia’s ASX 200 jumped more than 0.80 per cent in early trade Thursday.
Hong Kong’s Hang Seng index futures rose 0.23 per cent.
The Nikkei 225 index closed down 0.38 per cent on Wednesday, and the futures contract is up 0.74 per cent from that close.
Along with Netflix, the rest of the FAANG group, scheduled to report results in the coming weeks, jumped. Google parent Alphabet Inc rose 5.36 per cent.
The dollar fell against most currencies on Wednesday, as investors’ risk appetite held up.
Oil prices rose on the hopes that Biden delivers on the economic stimulus, a move that will increase demand for oil.
US Treasuries did not move much on Wednesday, with the market looking past the inauguration at this point.