CABINET OF MINISTERS RESOLUTION No 57 of 2020 | ESR

The Cabinet of Ministers Resolution No. 57 of 2020, concerning Economic Substance Requirements, represents a crucial regulatory framework designed to ensure that entities engaged in certain economic activities in the UAE have substantial operations within the country. This resolution aims to prevent base erosion and profit shifting by enforcing a requirement for entities to demonstrate that their activities generate substantial economic value in the UAE. Here, we delve into the specifics of “Relevant Activities” and “Core Income Generating Activities” under this resolution. 

Relevant Activities 

The resolution identifies nine key Relevant Activities that require compliance with economic substance requirements. These activities are: 

1. Banking Business 
2. Insurance Business 
3. Investment Fund Management Business 
4. Lease-Finance Business 
5. Headquarters Business 
6. Shipping Business 
7. Holding Company Business 
8. Intellectual Property Business 
9. Distribution and Service Centre Business 

Core Income Generating Activities 

For each Relevant Activity, Core Income Generating Activities (CIGAs) are defined. CIGAs are essential operations that are central to generating income from the Relevant Activity. Here’s a breakdown of CIGAs for each category: 

Banking Business: 

• Raising funds and managing risks, including credit, currency, and interest risks. 

• Providing loans, credit, or other financial services to customers. 

• Managing capital and preparing reports to investors or regulatory authorities. 

Insurance Business: 

• Predicting and calculating risks. 

• Insuring or re-insuring against risks and providing insurance services. 

• Underwriting insurance and reinsurance. 

Investment Fund Management Business: 

• Making decisions on holding and selling investments. 

• Calculating risks and reserves. 

• Managing currency or interest fluctuations and hedging positions. 

• Preparing reports for investors or regulatory authorities. 

Lease-Finance Business: 

• Agreeing on funding terms and acquiring assets for lease. 

• Setting terms and duration of financing or leasing. 

• Monitoring agreements and managing associated risks. 

Headquarters Business: 

• Making management decisions relevant to the group. 

• Incurring operational expenditures on behalf of a group. 

• Coordinating group activities. 

Shipping Business: 

• Managing crew, including hiring, paying, and overseeing crew members. 

• Overhauling and maintaining ships. 

• Overseeing shipping operations and organizing voyages. 

Holding Company Business: 

• All activities related to holding and managing interests in other entities. 

Intellectual Property Business: 

• For patents or similar assets: Core activities include research and development. 

• For marketing intangibles: Core activities include branding, marketing, and distribution. 

• High Risk IP Licensees: May involve strategic decisions and risk management related to the exploitation and protection of intellectual property assets. 

Distribution and Service Centre Business: 

• Transporting, storing, and managing inventories of goods. 

• Taking orders and providing consulting or administrative services.  

Conclusion 

The Cabinet of Ministers Resolution No. 57 of 2020 is a significant step towards ensuring that entities involved in these specified Relevant Activities demonstrate substantial economic presence and operational substance within the UAE. By focusing on Core Income Generating Activities, the resolution aims to align the economic activities of entities with their actual business operations, thereby enhancing transparency and compliance with global standards. 

Summary

Cabinet of Ministers Resolution No. 57 of 2020 establishes economic substance requirements for entities engaged in specific activities in the UAE. This regulation ensures that businesses generating income from key sectors such as banking, insurance, investment fund management, and intellectual property demonstrate substantial operations within the UAE. The resolution outlines Core Income Generating Activities (CIGAs) for each Relevant Activity, emphasizing the need for significant economic presence and operational substance. The goal is to prevent profit shifting and enhance transparency by aligning business operations with actual economic value in the UAE. 

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