Understanding ESR for investment fund management business is important for people who run this business in the UAE because it comes under the scope of relevant activities as described by Economic Substance Regulations. An investment fund management business is a business that executes and arranges discretionary investment fund management services. These services are usually available for funds either inside or outside the UAE. Making investments and de-investments and making decisions for funds on a risky level, etc is included in an investment fund management business. Services such as general administration of funds or advisory on fund management etc are not included in such business.
Relevant Authorities for Investment Fund Management Business
Relevant activities as described by ESR in UAE are always licensed under certain relevant authorities. Cabinet Resolution no. 57 has clearly defined relevant authorities for different relevant activities. Relevant authorities as per ESR for investment fund management business and the Resolution are as follows;
- In general, an investment fund management business is licensed under the Securities and Commodities Authority.
- If an investment fund management business is being executed in a free zone then it is licensed under the Free Zone Authority.
- If an investment fund management business is being executed in a financial free zone then it is licensed under the Financial Free Zone Authority.
Read also : Ways of Filing ESR Notifications & Report
CIGAs for Investment Fund Management Business
The Cabinet Resolution no.57 has described CIGA’s or Core Income Generating Activities that businesses perform under economic substance regulations UAE. Following are the core income generating activities performed by the investment fund management business in the UAE;
- An investment fund management business executes the selling and holding of investment funds and takes independent decisions in this regard. It does not implement already made decisions in different other companies. Sometimes the decision-makers of the company are not present in the UAE but their presence is mandatory when making decisions for funds.
- The business performs the calculation of reserves and risks for the overall investment fund management business. It means that calculation of risks must be done for every aspect of the business and not for a few of them only.
- The business also takes independent decisions for hedging positions, interest fluctuations, and also for currency whenever required in the UAE. This function is also holistic and does not include a portion of funds only.
- Lastly, an investment fund management business prepares and sends reports to the authorities and investors about the regulation, management, and supervision of the business. It does not include the administrative style compiling and preparing reports and the purpose is regulation only.
Requirements of ESR for Investment Fund Management Business
Like other relevant activities, the investment fund management business also needs to comply with the requirements of ESR regulations in the UAE. Following is how ESR will regulate its requirements for an investment fund management business;
- The authorities responsible for the regulation of an investment fund management business will determine whether or not the business is actively performing its CIGAs in the UAE.
- The authorities will analyze how much the business is generating from its activities and how it is contributing to the economy of the country.
- The authorities also manage the activities like taxes, penalties, and fines that apply to the business if it does not comply with the ESR regulations.
- The relevant authority will require the investment fund management business to file an ESR notification within six months from the year-end date. In this notification, the business will be asked to provide some important pieces of information. The status of the licensee or exempted licensee also needs to be confirmed in this notification. If the licensee considers itself exempted then it needs to provide evidence to support its status of exemption within this notification in order to avoid further ESR requirements.
- The relevant authority will also require the investment fund management business to submit an ESR report which includes all the information of the business, income, employees, assets, and much more. This report needs to be submitted within 12 months from the year-end date. If the business has not earned any relevant income in the particular period then the report will not be required.
- Lastly, the authorities will check all the information provided by the investment fund management business and will declare its decision about the business whether or not it meets the economic substance test. The business needs to meet this test in order to keep performing its activities in the UAE.
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