CbCR mandate for UAE Ministry of Finance – It’s the time!
In 2018, The United Arab Emirates (UAE) realized the importance of seamless information exchange and international cooperation and decided to undertake tax reforms. This was key to enhancing its global position, especially concerning tax liability. As a part of this measure, The Ministry of Finance (MoF) signed a multilateral competent authority agreement (MCAA) on the exchange of Country-by-Country reports (CbCR) under the Base Erosion and Profit Shifting (BEPS) Inclusive Framework.
The UAE has since committed to taking essential steps to implement the minimum standards mandated by BEPS and consolidate its position as an attractive regional and global destination for foreign direct investment. This is a significant step for multinational enterprises (MNEs) to improve their operating structures and understand and adhere to additional compliance and reporting standards.
What is CbCR, and to whom does it apply?
Entities that are “tax residents” in the UAE are a part of a multinational enterprise (MNE). They are required to adhere to the requirements of a CbCR submission.
The CbCR rules cover MNE groups:
- With a group turnover of at least Arab Emirate Dirham (AED) 3.15 billion (approximately
(USD) 857 million) in the financial year immediately before the reporting
period, from the total accounting reports of that preceding year (i.e., FY18); and
- If the sole parent entity (UPE) of the MNE group is operating in the UAE; or
- If a UAE-resident constituent entity (CE) of the MNE group (with its UPE outside the UAE) is appointed as the Alternate Parent Entity (APE); or
- If the MNE group has a UAE-resident CE, which is neither the UPE nor an APE.
What needs to be done?
A UAE-based entity of an MNE is required to notify the relevant authority (i.e., the UAE MoF) of its company formation structure i.e. if it is an ultimate parent entity (UPE) or a surrogate parent entity (SPE) that will file the CbC report on behalf of the MNE. SPE submission is not allowed in the UAE. The company’s identity and tax jurisdiction that would submit the CbC report is to be filed before the end of the MNE’s financial reporting year. Similarly, the CbC report must be filed within a year from the end of the financial reporting annum of the MNE. Hence, for the financial year beginning 1 January 2019, the report must be submitted by 31 December 2020.
What does a CbCR comprise?
The content and format of CbC reports are in line with the guidance issued by the OECD. This includes a bundle of financial data relating to revenue, profits/losses before income tax, income tax paid, income tax accumulated, disclosed capital, total earnings, employee numbers, and tangible assets. MNEs must also declare business details concerning each jurisdiction in which the MNE operates.
All this information about CbCR may be daunting. But with our team of experts at DataTracks, it need not be. We can help identify critical CbCR risk areas, strategize to eradicate compliance gaps, and estimate your organizational readiness to ensure concurrence with the rules. We will also aid in optimizing governance and assisting with implementing a system so your organization complies with the standards. We believe every organization is unique and requires bespoke solutions catering to specific problems.