Everything MNCs Need to Know About the New Financial Reporting Requirement in the UAE
The UAE has set December 31st as the deadline for the Multi-National Entities (MNEs) to register in the ‘MNEs Notification and Reporting System’ as per the Cabinet Resolution no. 44 of 2020. The reporting system is an integral part of the Action 13 of the Base Erosion and Profit Shifting (BEPS) initiative. BEPS Action 13 requires large Multinational Groups of Entities (MNE Groups) to file a Country by Country (CbC) report that reveals the Multi-National Group’s global revenue, profit before tax, and the jurisdiction of operation etc.
Here is a breakdown of the essential things that the MNCs must know for registering in the ‘MNEs Notification and Reporting System’:
Scope of the Country by Country Reporting (CbCR)
The CbCR requirements apply to the MNE Groups that are headquartered in the UAE with reporting fiscal years commencing on or after January 2019. The CbCR is designed to reduce any gap in information between the taxpayers and tax administrations in relation to the information on where the economic value is generated within the MNE Group. It also takes into consideration whether the information matches where profits are allocated and taxes are paid on a global level.
As per Article 1 of the Cabinet Resolution no. 44 of 2020, the CbCR applies to the entities that have a total consolidated group revenue that is equal to or more than AED 3,150,000,000 during the Fiscal Year immediately.
Who Needs to Report to the MNEs Reporting System?
As per Cabinet Resolution no. 44 of 2020, the Ultimate Parent Entity (UPE) of the MNE Group whose tax residency is in the UAE is required to register to the MNEs Reporting System. The UPE is the constituent entity of the MNE Group that
- Owns directly or indirectly a sufficient interest in one or more Constituent Entities of such MNE Group such as it is required to prepare Consolidated Financial Statements under the accounting principles generally applicable in its jurisdiction tax residence, or be so required if its equity interests were traded on a public securities exchange in its jurisdiction tax residence
- Its Group does not include any other Constituent Entity that owns directly or indirectly an interest described in such Entity
What Should be the Content of the Report?
According to Article 3 of the Cabinet Resolution no. 44 of 2020, the CbC Report should contain the following information:
- Aggregate information related to the amount of revenue, profits (losses) before income tax, income tax paid, income tax accrued, stated capital, accumulated earnings, number of employees, non-monetary or cash equivalent tangible assets in respect of each country in which the MNE Group carries out its activities
- An identification of each Constituent Company of the MNE Group indicating the jurisdiction of tax residence of such Constituent Company, and, where different from such jurisdiction of tax residence, the jurisdiction under the laws of which such Constituent Company is established, and the nature of the main business activity or activities for each such Companies.
Requirements for Maintaining the Records
All reporting entities, as per Cabinet Resolution no. 44 of 2020, must maintain the actual records for at least 5 years from the date of submission to the Competent Authority. The entities can retain the records in electronic format. If the records are prepared in a foreign language other than English, then an English translation must be provided upon request.
Administrative Offences and Penalties
As per Article of Cabinet Resolution no. 44 of 2020, the reporting entities will incur administrative penalties if they fail to comply with the regulations enlisted in the resolution. The following are the offences and corresponding penalties:
- If a reporting entity fails to meet the deadline as specified in the Resolution, a penalty of AED 1,000,000 will be incurred. Also, an administrative penalty of AED 10,000 for each day will incur if the failure to comply with the law continues.
- The reporting entities will have to pay a penalty of AED 100,000 for failing to maintain the required documents and information as set out by the Resolution.
- The Authorities may impose an administrative penalty in the range of AED 50,000 – AED 500,000 if the Reporting Entity fails to provide the information in a complete and accurate manner
Consult with Jitendra Chartered Accountants (JCA)
The UAE launched the new MNE Reporting System to enhance the CbCR requirements that apply to Multi-National Enterprises in the UAE. This is in line with the OECD’s BEPS initiative that seeks to eliminate the gaps in international taxation for the entities that avoid taxation or engage in tax inversions to cut down their tax burden. Apart from complying with the CbCR requirements set out in Cabinet Resolution no. 44 of 2020, the MNE Groups are required to register for the new MNE Reporting system as per the deadline specified by the Ministry of Finance.
Failure to comply with the requirements of the law may incur hefty penalties but consulting with Jitendra Chartered Accountants (JCA) is a better way for the companies to ensure compliance. JCA has a team of highly efficient Chartered Accountants who will ensure that the CBC report is prepared and submitted in compliance with the law.