In the United Arab Emirates, on April 30, 2019, the Cabinet Resolution No. (32) of 2019 (the "Resolution") on Country by Country Reporting (CbCR) was released. On the one hand, it has been modified and is now covered by Cabinet Resolution No. (44) of 2020. The Organization for Economic Cooperation and Development's ("OECD") guidelines on Country by Country Reporting ("CbCR") form the basis for the standards that have been established.
Applicability of CbCR in the UAE
The CbCR requirements apply to the following:
- Organizations that are tax residents in the United Arab Emirates (after this, "tax residents in the UAE") and
- Tax Residents who are a part of a multinational group of enterprises ("MNE") with consolidated revenues equal to or exceeding AED 3.15 billion (Approx. USD 858 million) in the financial year before the "financial reporting year" in question.
With financial reporting years beginning on or after January 1, 2019, Multinational Enterprises (MNE) Groups with headquarters in the UAE are subject to the CbCR standards. The CbC report for the preceding financial reporting year must be provided by December 1, 2020; otherwise, various administrative fines may be levied on those worried UAE taxpayers. They won't adhere to the CbCR criteria. Thus this will happen.
Notification and Reporting on a Country-by-Country Basis
1. CbCR Notification:
Companies with their corporate headquarters in the UAE that fulfill the qualifications mentioned earlier are subject to the CbCR regulations. The notice must be sent by the Ultimate Parent Entity of the MNE Group, a UAE tax resident, stating that the CbCR criteria apply and that the notifying business is the Ultimate Parent Entity of the MNE Group, a resident of the UAE.
The CbCR notifications must be sent by the end of the MNE's financial reporting year. For example, the MNE Group must file its CbCR notice in the UAE no later than December 31, 2022, as its financial year begins on January 1, 2022.
2. CbC Report
Companies with headquarters in the UAE that fulfill the abovementioned requirements must adhere to local CbC Reporting laws. The CbC Report provides quantitative and qualitative data on the MNE Group, including its earnings, sales, number of employees, company description, etc.
The CbC report must be submitted within a year after the MNE Group's reporting year's conclusion. For the MNE Group, for instance, the CbC Report must be submitted by December 31, 2023, since its fiscal year begins on January 1, 2022, and ends on December 31, 2022.
Penalties for Failure to Comply
According to the following, the Resolution imposes four different administrative fines for UAE tax-resident entities subject to the CbC reporting and notification requirements:
A) Not Keeping Records and Information
Failure to maintain the records necessary to comply with the Resolution for a minimum of five years after the CbCR is presented to the Competent Authority will result in an administrative fine of AED 100,000.
B) Withholding of Information
Failure to provide any information necessary to the Competent Authority in compliance with the CbCR and notification requirements may result in an administrative punishment of AED 100,000.
C) Failure to Submit Information for Notice or Reporting Purposes
Failure to submit the CbCR by the deadline set for submission or failure to notify the Competent Authority of your intention to submit the CbCR on or before the deadline set for submission will result in an administrative fine of AED 1,000,000 (plus AED 10,000 for each day of failure up to a maximum of AED 250,000).
D) Information Not Being Complete and Accurate
Failure to provide complete and correct information may result in an administrative punishment of up to 500,000 AED but not less than 50,000 AED.
For the CbCR, Who Should Be Regarded as a "UAE Tax-resident Entity"?
Under the current legislation of the UAE and international tax treaties, a company should be regarded as a tax resident in the UAE if it was incorporated or founded there or has its place of effective management there.
Penalty Procedure Following the Law
- The Ministry of Finance's first step is identifying noncompliance (MOF).
- The Ministry of Finance notifies the organization and gives it a 14-day grace time to abide by the rules.
- If an organization does not comply or does not provide a justifiable explanation, the Ministry of Finance issues penalty notifications, and for six months, these actions are taken.
- File an appeal within 30 business days or pay the fine within 30 days.
- The MoF appeal committee must decide within 60 days whether to accept or reject the appeal.
- Should an appeal be denied, the organization must pay the fine within 30 business days.
How May Our Professional Assist You?
Concerning Country by Country Reporting, Farahat & Co. is delighted to assist you and your company in carrying out and adhering to the process, processes, and filing of your CbCR Notification and CbC Report. Our skilled professional will thus take the following steps:
- The CbCR Notification you must submit to the Authority to comply with CbCR will be prepared with our assistance.
- The CbC Report will be created following the Ministry of Finance's (MOF) specifications.