Rankings – UAE
"UAE government strengthens regulatory framework to ensure legitimacy in the eyes of the global community"
Regulatory change has been a key theme over the last 12 months in the UAE as the country seeks to broaden its appeal as a business location
he UAE has been busy implementing measures to address tax avoidance and money laundering to match international best practice and change perceptions of the state as a tax haven.
Zahra Haider from Nexia International member firm Sajjad Haider Chartered Accountants outlines some of the key developments as follows:
- Cabinet Resolution No. 57 of 2020 concerning economic substance requirements in response to a review of the UAE tax reporting framework by the European Union
- Cabinet Decision No. 58 of 2020 concerning ultimate beneficial owners, which requires companies to maintain registers with information about their ultimate beneficial owners, shareholders and nominee board members
- Cabinet Decision No. 74 of 2020 concerning anti-money laundering and countering financing of terrorism
Zahra Haider, Sajjad Haider Chartered Accountants, Nexia International member firm
“The UAE is committed to enhancing market transparency and efficiency and bringing compliance requirements within the framework of international obligations related to money laundering and terrorist financing, prevention of treaty abuse and harmful tax practices, and compliance with international transfer pricing laws, as well as global guidelines to combat tax avoidance through tax base erosion and profit shifting,” says Asad Abbas, managing partner of PrimeGlobal member firm Asad Abbas & Co Chartered Accountants.
Asad Abbas, Managing Partner, Abbas & Co Chartered Accountants, PrimeGlobal member firm
Other significant regulatory developments include the 100% foreign direct investment option, which means foreign investors do not need to have a local sponsor to own 51% of their business, explains Siddharth Ravi, auditor at MSI Global Alliance member firm Alnoman & Ravi.
Siddharth Ravi, Auditor, Alnoman & Ravi, MSI Global Alliance member firm
While the law has been amended, Faiyaaz Rajkotwala, partner at MGI Salim Rajkotwala & Associates notes that its implementation is still a work in progress, with the business community expecting to see some restrictions on the freedoms promised, such as size of investment and sectors covered. “Implementation of various other laws, such as the economic substance regulations, ultimate beneficial owner declarations and anti-money laundering regulations for financial and certain designated non-financial businesses has moved ahead after some delays due to the pandemic,” he adds. “The UAE government is clearly looking to continue to strengthen its regulatory framework, to ensure it secures the growth it wants with the legitimacy it needs in the eyes of the global community.”
Faiyaaz Rajkotwala, Partner, MGI Salim Rajkotwala & Associates
An onshore UAE company can now be established with no UAE national shareholder provided it does not carry on activities with strategic importance explains Franzel Ann Francisco, manager, assurance and advisory at Ecovis Fuller International CPA.
“These strategic activities and their terms will be determined later by a specialised committee and will require participation of an UAE national either as a shareholder or as part of the management,” she says. “Companies will have a maximum of one year to comply with the amended law from the time the changes become effective, although this period may be extended under a decision by the cabinet as proposed by the Minister of Economy.”
Franzel Ann Francisco, Manager, assurance and advisory, Ecovis Fuller International CPA
Francisco adds that the UAE is optimistic that the amendments to the companies law will attract valuable investments and will promote UAE as a destination for ease of doing business. Sudhir Kumar, senior partner Kreston Menon observes that the new legal framework introduces major amendments that revoke or replace a total of 51 existing articles of the commercial companies law.
“The framework brings in a rejuvenated investment climate that will encourage more joint ventures as well as major mergers and acquisitions,” he says. “This initiative is definitely going to attract long term investments and will accelerate sustainable growth.”
Dubai recently announced that three new chambers of commerce - Dubai Chamber, Dubai Chamber of International Trade and Dubai Chamber of Digital Economy - would be created. Kumar explains that the Chamber of International Trade will work to support the interests of international companies based in Dubai, while the Chamber of Digital Economy will seek to leverage technological trends to promote growth and innovation.
John Varghese, managing partner HLB HAMT points out that the law pertaining to 100% ownership for foreign nationals will not be applicable to companies owned by the federal or local government or their subsidiaries. “The UAE government announced a series of legal changes last year lessening the role of Islamic legal codes in the judiciary system of the country,” he adds. “Relaxations have been made to laws regarding divorce, wills and inheritance.”
John Varghese, Managing Partner, HLB HAMT
The government also introduced a scheme that gives expats an opportunity to apply for retirement visas. Residents aged 55 and above can make use of this visa to continue their stay in the emirate and the visa can be renewed every five years.
To apply for a retirement visa, retirees must meet one of three financial requirements
- Earn AED20,000 monthly
- Have AED1 million in savings
- Own a property in Dubai worth AED2 million
A valid UAE health insurance is also required to avail the scheme.
The UAE has also taken various steps to make sure that the legal system is up to international standards, making sure contracts are enforceable and are upheld in the court and speeding up litigation.
“The objective of economic substance regulations is to make sure that businesses set up here have substance in UAE - to ensure the licensee has actual business activity happening in UAE and not a licence that is purely created to avoid taxation,” says Ravi.
In July 2020, Sheikh Mohammed bin Rashed Al-Maktoum announced that the Insurance Authority would be merged with the Securities and Commodities Markets (SCA). The Central Bank of UAE (CBUAE) is also now responsible for protecting the rights of the insured and monitoring the financial solvency of insurance companies.
“With this change, the UAE government wants to ensure the CBUAE provides the appropriate environment to develop and boost the role of the insurance industry to support the national economy, encourage fair and effective competition and provide the best insurance services with competitive prices and coverage,” says Stany Pereira, managing partner at PKF UAE.
In November, Abu Dhabi Global Market announced the issuance of a public consultation paper on its proposed new data protection regulations. Dubai International Financial Centre’s new data protection law came into force in October 2021, bringing its data protection regime in line with the GDPR and global data protection standards.
Zayd Khalid Maniar, International Liaison Partner, Crowe UAE
BEPS Action 13 requires large multinational groups of entities or MNEs to file a country-by-country report that should provide a breakdown of the group’s global revenue, profit before tax, income tax accrued and other indicators of economic activities for each jurisdiction in which it operates. “In the UAE, country-by-country reporting requirements are applicable to UAE headquartered groups with financial reporting years starting on or after 1 January 2019,” explains Zayd Khalid Maniar, international liaison partner Crowe UAE. “Accordingly, chartered accountants play a pivotal role in helping clients understand the requirements and help narrow any expectation gaps.”
The Federal Ministry of Economy has been tightening up the regulations relating to who can sign audit reports. The requirements include holding an accounting academic qualification from a recognised university or equivalent institution, with an equivalence certificate attested from the Ministry of Higher Education for all academic certificates obtained from outside the country.
“It is mandatory that a further certificate confirms that the person is a partner of a UAE registered national auditor, registered or working with them,” explains Tim Howe, managing director at MSI Global Alliance member firm Al Ghaith & Co. “Annually, auditors have to undergo a five-day training seminar - organised by the ministry - before their licence is renewed.”
The audit profession has undoubtedly benefitted from more emphasis on rules and regulations and closer monitoring by the ministry, although there are still some firms that need to be weeded out, he adds.
Paryank Shah, partner at KSi Shah & Associated acknowledges that revenue is down as a result of the pandemic. “However, I believe there are positive economic prospects for the years to come with the UAE reopening to immigrants again and having gained a positive relationship with Israel,” he says.
As the pandemic continues, auditors are facing new challenges in performing audits says Abbas. “They need to be more creative in performing audit procedures and ensuring compliance with auditing standards,” he continues. “Auditors can now rely on information technology resources in obtaining reasonable assurance that the financial statements are free from material misstatement.”
Even though there are various overseeing bodies to monitor practice in accounting, auditing and tax advisory, there is still a need to establish a professional body that will promulgate accounting standards across the country suggests Abbas. “This UAE professional body could play an increased regulatory, licensing and standards monitoring role, which would result in a better quality of financial information,” he adds.
Rajkotwala says it is understandable that the government has been focused on pandemic mitigation measures and is confident that it will focus on this matter in connection with its goals of strengthening the regulatory and compliance framework once the pandemic is over.
According to Howe, one consequence of the pandemic is that many accountants have lost their jobs in the private sector and have set up small accounting businesses. “With minimal expenses, they present a real challenge to existing firms when it comes to fees for accounting and tax work,” he observes. “Most are professionally qualified but there are still some with little or no qualifications and experience, working in a sector with few regulations to date.”
He says there is no doubt that fee income will be slightly lower in 2021, with clients renegotiating and others having closed down. “There are indicators that some firms have reduced staff numbers, whilst others are making more use of outsourcing,” Howe concludes.