Distribution and Service Centre Business under Economic Substance Regulation in UAE Definition of Distribution and Service Centre Business: Any of the following businesses: (a)  purchasing from a Foreign Connected Person and importing and storing in the State: component parts or materials for goods; or goods ready for sale, and reselling such component parts, materials or goods outside the State. (b)  providing services to Foreign Connected Persons in connection with a business outside the State. Detailed activities in respect of Distribution and Service Centre Business include: (a) transporting and storing component parts, materials or goods ready for sale. (b) managing inventories.- includes considering minimum acceptable stock levels, managing frequency of stock take, whether using storage space effectively, perishability of stock and ensuring security procedures are in place. (c) taking orders.- includes the provision of the order processing element of the entire fulfillment process, whether that is manual or electronic. (d) providing consulting or other administrative services. – includes providing such services, which are offered or solicited to other group companies, usually with a mark-up. What is a “Distribution and Service Centre” Business? A “Distribution and Service Centre” Business refers to two distinct activities that are covered under one “Relevant Activity” heading. A UAE entity is considered engaged in a Distribution Business if it:

• Purchases goods from a Foreign Connected Person; and
• Import those goods into the UAE; and
• Distributes those goods outside the UAE.

A UAE entity is considered engaged in a Service Centre Business if it:

• Provides services to a Foreign Connected Person; and
• Those services are in connection with the Foreign Connected Person’s business outside the UAE. The economic substance requirements for a Distribution and Service Centre Business are applicable to UAE entities whose main activity is distribution and/or service centre operations. Licensees engaged in Banking, Insurance, Investment Fund Management, Lease-Finance, Shipping, or Headquarter Business may also purchase goods for, and/or provide services to foreign group companies as a normal part of their business operations. To prevent duplicate reporting, such Licensees are not also considered engaged in a Distribution and Service Centre Business. UAE entities that purchase and sell goods from and to third parties, or that provide services to third parties, are not subject to the Regulations (as a Distribution and Service Centre Business).

Examples relating to Distribution and Service Center Activities Economic Substance Example 1: XYZ FZCO based out in Dubai buys product X from other foreign connected persons (group companies) based in India and re-sells them to other group companies and customers in Europe. These activities are within the scope of the distribution business, therefore XYZ FZCO is subject to the economic substance requirements in Dubai, UAE. Economic Substance Example 2: ABC LLC’s (registered in UAE) main activity is to provide administration and support services to Head office based in Singapore, which are recharged at cost. These activities are within the scope of Distribution service center business, therefore ABC LLC is subject to the economic substance requirements in UAE. Economic Substance Example 3: Tech LLC (the “Company”) is a technology service providing company based in Dubai to various customers in UAE. Tech LLC employs the staff and owns the premises used for the business of the Company. Another related company based in the UK requires a specialist in marketing on temporary basis to help them. Tech LLC employs a staff who