Intellectual Property Business under Economic Substance Regulation in UAE
High Risk IP Licensee is a Licensee which carries on an Intellectual Property Business and in respect of which any of the following two conditions apply:
(a) the Licensee –
- did not create the intellectual property in an intellectual property asset which it holds for the purposes of its business.
- acquired the intellectual property asset either from-
- a Connected Person.
- in consideration for funding research and development by another person situated in a country other than thin e State.
- licences the intellectual property asset to one or more Connected Persons or otherwise generates income from the asset in consequence of activities performed by Foreign Connected Persons.
(b) the Licensee does not carry out research and development, or branding, marketing and distribution as part of its State Core Income-Generating Activity.
In respect of Intellectual Property Business:
(a) where the Intellectual Property Asset is a –
- patent or an asset that is similar to a patent, research and development.
- non-trade intangible (including a trademark), branding, marketing and distribution.
(b) if the Relevant Activity is conducted by a Licensee that is regarded as a High Risk IP Licensee, the State Core Income-Generating Activity must include any of the following additional activities:
- taking strategic decisions and managing (as well as bearing) the principal risks related to development and subsequent exploitation of the intangible asset generating income.
- taking the strategic decisions and managing (as well as bearing) the principal risks relating to acquisition by third parties and subsequent exploitation and protection of the intangible asset.
- carrying on the ancillary trading activities through which the intangible assets are exploited leading to the generation of income from third parties.
What are the conditions for an IP Business to be considered as “High Risk”?
Either Condition A or B as set out below must be met for an IP Business to be considered as “High Risk”.
|Condition A – all of the following need to be met|
|The Licensee does not carry out research and development, or branding, marketing and distribution as part of its UAE Core Income-Generating Activity|
What does it mean if a Licensee has a “High Risk” IP Business?
- Information is automatically shared with the foreign competent authority of the parent company, ultimate company and ultimate beneficial owner; and
- The Licensee is presumed to not meet the Economic Substance Test, unless the Licensee meets the increased substance requirements.
The increased substance requirements (in addition to those set out under Question 5) require a High-Risk IP Licensee to demonstrate (and submit proof) that:
- It has (had) a high degree of control over developing the IP asset; and
- It has adequate full-time employees with the necessary qualifications that permanently reside and perform their activities in the UAE – relevant employee information (e.g. experience, contracts, qualifications etc.) would need to be provided; and
- It has a business plan showing the reasons for holding the IP in the UAE; and
- Relevant decision making has and continues to take place in the UAE