ESR for Investment Fund Management Business

On 30 April 2019,  the Economic Substance Regulations was issued by United Arab Emirates under Cabinet of Ministers Resolution Number 31 of 2019, according to the global standards set by Organization for Economic Cooperation and Development (OECD) , as well as by the European Union Code of Conduct Group on Business Taxation (EU COCG). Investment Fund Management Business is required to comply with ESR requirements that maintains and illustrates the economic presence of  onshore and free zone companies who practice this Relevant Activity relative to the Economic Substance Test. Therefore, Investment Fund Management Business must assert ESR investment.

According to Ministerial Decision 100 of 2020 of Economic Substance Regulations, an Investment Fund Management Business is defined as a business that incorporates the Licensees who provide optional services for investment management respective to the local or foreign “Investment Funds”.

Whereas Article 1 of Cabinet of Ministers Resolution Number 57 of the year 2020 defines an Investment Fund Management Business to have a meaning as set out in the law that governs such Relevant Activity of Economic Substance Regulation in UAE.

ESR for Investment Fund Management Business is responsible:

  • To take decisions to either hold or sell the investments.
  • To calculate the investments’ risks as well as reserves.
  • To take decisions about change in the currency or interest and restricting the positions.
  • To prepare the reports for Regulatory Authority or investors regarding the management of such business.

Investment Fund Management Business optional services for investment management include decisions that are related to making investment, disinvestment and risk for an Investment Fund. However, Investment Fund Management Business do not include the businesses in UAE that provides  management of fund, the custodians, advice for investments and other Investment Fund related services.

Also read : Economic Substance Regulations Notification form

It is to be kept under consideration that unless an Investment Fund  is self managed it is not an Investment Fund Management Business. An organization where an Investment Fund is carried out under joint collaboration, then the Investment Fund Manager will work in accordance with Economic Substance Regulation whereas the General Partner will not be working under ESR UAE unless and until it does not keep its business activities separate from its role as General Partner.

Moreover, the Regulatory Authorities that are appointed to regulate the Investment Fund Management Business includes Securities and Commodities Authority, Free Zone Authority Free Zone Authority respective to Investment Fund Management Business carried out by free zone companies and Financial Free Zone Authority respective to an Investment Fund Management Business carried out by financial free zone companies.

You should know : Relevant activities under Economic Substance Regulations

The ESR UAE mentioned the following Core Income Generating Activities for an Investment Fund Management Business:

  • To take decisions to either hold or sell the investments.

This Core Income Generating Activity involves to independently think, reflect and make decisions about the investments and disinvestments. A Licensee or Exempted Licensee is not carrying out Core Income Generating Activity when it does not independently think, reflect and make decisions about the investments and disinvestments. Under Economic Substance Regulation, Core Income Generating Activity for an Investment Fund Management Business requires a Licensee or Exempted Licensee to be physically present in the United Arab Emirates when the independent decisions are made regarding the investments or disinvestments.

  • To calculate the investment’s risks as well as reserves.

Investment management respective to the local or foreign “Investment Funds” requires the Licensee or Exempted to clearly evaluate and control the risks that are associated with the investments of an Investment Fund. This Core Income Generating Activity consists risks for the Investment Fund for all the spheres rather than one area.

  • To take decisions about change in the currency or interest and restricting the positions.

This Core Income Generating Activity for an Investment Fund Management Business determines the vulnerability of the Investment Fund. This activity is also involved in determining the interests of the Investment Fund, restrictions for the change in the positions against currency or interest, and decision making for the determinations. The Investment Fund Manager  who undergoes isolated decision making not keeping in view the position of the Investment Fund is not considered to be carrying out the  Core Income Generating Activity for an Investment Fund Management Business and would be considered as only when it carries out the activity entirely.

  • To prepare the reports for Regulatory Authority or investors regarding the management of such business.

This Core Income Generating Activity requires the Licensee to oversee the compilation of quarterly or annual reports from the UAE and to check out if the systems are in place, including the agreement with any third-party administrator. The Licensee is responsible for the reporting under Economic Substance Requirements, and must have knowledge in order to convey the accurate position of the Investment Fund.

To know more about Economic Substance Regulations , call our experts in Dubai, UAE.

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