Steps Taken By Companies If Their Income Comes Under CIGAs
What are CIGAs? How income under CIGAs is treated are some of the recent queries received from the business owners since the ESR implemented in UAE. Before answering these queries, you should be aware of ESR regulations and examine if any UAE entities are within the scope of the economic substance requirements. Apparently, the second step is to assess the income-generating activities coming under the law as CIGA or relevant activities.
How ESR works in the UAE?
The ESR is applicable to natural or juridical persons, including:
- Onshore and free zone companies
- A limited liability companies
- A private shareholding companies
- A public shareholding companies
- A joint venture companies
As per the ESR, UAE-based entities within its scope to comply with annual notification requirements from January 2020 onwards:
- Compliance with the economic substance test
- Notify the regulatory authority and submit annual reports
In case of failure to notify will attract the penalty
What is CIGA- Core Income Generating Activities?
CIGAs are activities for the generation of the gross income earned from its business Relevant Activity. For each Relevant Activity, there are various tasks (called core income-generating activities) specified in the Economic Substance Rules that must be undertaken in the UAE. For example, the tasks of taking relevant management decisions, incurring operating expenditures and coordinating group activities carried out in UAE by staff present in the UAE. The core income-generating activities listed in the legislation for the relevant activity that constitutes:
- Banking Businesses
- Insurance Businesses
- Investment Fund Management Businesses
- Lease-Finance Businesses
- Headquarters Businesses
- Shipping Businesses
- Holding Company Businesses
- Intellectual Property Businesses
- Distribution and Service Centre Businesses
A Licensee should therefore consider the area performed in the UAE. Where the CIGA involves making relevant decisions, and that decision to be considered as being made in the UAE.
Steps taken by companies with income coming under CIGAs
1. Classify and structures companies activities
Before filing the ESR notifications the business activities falling under the relevant activity and CIGAs are monitored and assessed for the financial period. The performance of any non-listed activities and illegal activities are identified and reported to the management. Corrective actions are introduced to improve the effects. Hiring an outsourced accounting service can prevent you from falling into such pitfalls and timely filing of ESR notifications. An outsourced accountant can enable them to make more informed decisions in the business.
2. Perform gap analysis to consider compliance with standards
A gap analysis is the assessment of your current business performance for the purpose of identifying the differences between your current state and future.
It can be turned to a few questions:
- Where is our business now?
- What are our goals in the next few years?
- How are we going to close the gap between current and future goals?
On hiring good expertise accounting professionals, the gap can be closed with best practices.
3. Documentation of financial records
It is mandatory for the companies to maintain the financial statements for filing notifications to the authority. The evidence of the transactions enables transparency and accuracy in the accounting system. CDA experts assure the timely filings and documentations with best accounting software in UAE.
4. Assess the income from the relevant activity during the financial period
The income earned from each relevant activity and CIGA is measured. The allocation of various expenses and income are performed based on their occurrence in the mainland by the team of accountants in UAE. Identify the expenses and assets in respect of the relevant activity, and ensure access to assets in UAE.
5. Conduct board meetings with a quorum
After the assessment of income and expenses from each activity a board meeting is conducted between the physically present directors in UAE. The findings and suggestions are conveyed to them, opinions are collected. Also, ensure board meeting minutes are signed and maintained in the company’s system for future references.
6. Monitor the inflow to the bank and audit according to the law in UAE
Conduct account reconciliations and identify the errors, misappropriations or fraudulent acts in the accounts. The financial audit is performed including internal and external to measure the true and fair view of the financial statements and ensure financial accuracy as per the standards. Assure the basic understanding of International Law and accounting canons.
7. Recruit new staffs or assess the qualifications of existing staff
Identify the number of UAE based full-time employees or other personnel for performing the relevant activity. Assess the qualifications and experience in the related industry. Ensure control and supervision over any outsourcing arrangements, e.g. Outsourced Accounting, Payroll Services, VAT Consultation Services through contractual agreements.
Why Choose CDA?
CDA recommends potentially affected companies to take the necessary steps to ensure compliance with the economic substance requirements. As you know the introduction of the UAE Economic Substance Regulations is one of the milestones for the UAE’s tax policy. To assist you in this capacity, we can provide several services.
CDA have qualified and experienced professionals dedicated to bringing their talents to bear on our client’s unique issues. As a team of certified professionals, we have experience with all forms of financing. Our services include Accounting, Bookkeeping, VAT Consultancy, CFO Services, Management Accounting, Auditing Services.
If you are running a company with income that comes under CIGAS, contact us, our expert can guide you through the essential step you need to take.