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Headquarters Business – ESR Relevant Activity and Core Income-Generating Activity

Businesses in UAE are expected to use a ‘substance over form’ approach to determine whether or not they undertake a Relevant Activity and, as a result, are within the scope of the Regulations. This determination would require the business to not only consider the activities stated under their commercial license or registration certificate but also to assess the activities carried out during a financial period.

Headquarters Business

If the Licensee provides services to foreign group companies, and through the provision of such services:
  • The Licensee takes on the responsibility for the overall success of the group.
  • The Licensee is responsible for an important aspect of the overall group’s performance.
With regards to the above two points the services provided by the entity must involve:
  • The provision of senior management.
  • The assumption or control of material risk for activities carried out by foreign group companies.
  • Substantive advice in relation to the assumption or control of such risks.

A Licensee’s position in a group’s corporate structure is not relevant for determining whether it is engaged in a Headquarters Business. The Licensee does not need to be the direct or ultimate parent of a group company for it to be considered a Headquarters Business; whether an entity carries on a Headquarters Business entirely depends on the nature of the services it provides to foreign group companies.

Licensees that are mainly engaged in Banking, Insurance, Investment Fund Management, Lease-Finance, Shipping or Distribution and Service Centre Businesses, it may be a normal part of their activities to provide headquarters services. To prevent duplicate reporting, such Licensees are not considered engaged in a Headquarters Business and will not need to separately demonstrate economic substance in respect of such activities.

Core Income-Generating Activities of a Headquarters Business

The ESR Regulations mention the following CIGAs for a Headquarters Business:
  1. Taking relevant management decisions – refers to making decisions on the substantive functions and significant risks for group companies, such as decisions on material acquisitions and purchases, the group companies’ sales and marketing strategy, product development, business process standardization, etc. For a decision to be seen as being made in the UAE, the majority of those making the decision should be physically present in the UAE.
  2. Incurring operating expenditures on behalf of group entities – include engaging specialist advice or procuring technology on behalf of the group as a whole or purchasing significant assets or specific services for or on behalf of group companies.
  3. Coordinating group activities – refers to ensuring that activities such as marketing, HR, IT, finance, tax etc. are coordinated and organized in a way that produces the best outcome for the group as a whole as opposed to individual group companies.

How BSA can help you

We can assess if the entities and activities are within the scope of the economic substance regulations and/or whether the entity can benefit from any of the exemptions in the Regulations.

We can carry out a gap analysis that represents the current substance and corporate governance processes against what is required under the regulations.

We can support you in the preparation and submission of your annual notifications and economic substance report to the Regulatory Authorities.
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