A UAE business is regarded as carrying on an Intellectual Property Business if it holds, exploits, or receives gross income from “Intellectual Property Assets*”.
An Intellectual Property Asset is defined as any intellectual property right in intangible assets, such as copyrights, patents, trademarks, brands, and technical know-how, from which the Licensee earns separately identifiable income in the form of royalties, license fees, franchise fees, capital gains and any other income from the sale or exploitation of the Intellectual Property Asset.
Core Income Generating Activities
- taking strategic decisions and managing (as well as bearing) the principal risks related to development and subsequent exploitation of the Intellectual Property Asset
- 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 Intellectual Property Asset
- carrying on the ancillary trading activities through which the Intellectual Property Asset are exploited leading to the generation of revenue from third parties.
Special points to consider
• Patents and similar assets (e.g. copyrighted software, technical know-how and other similar novel, useful and protected assets): ‘Research and development’.
This CIGA includes planning and documentation of new products, processes or services, prototyping, demonstrating, piloting, testing and validation of new or improved technologies, addressing known scientific or technological obstacles, applying research findings or other knowledge for producing or introducing new or improved materials, devices, products, processes, systems, technologies or services, etc.
• Marketing intangibles: ‘Branding, marketing and distribution’. Marketing and branding include advertising, seeking endorsements, artistic design, developing consumer awareness and developing customer loyalty. Distribution includes distribution of the marketing intangible through various mediums such as on demand services, business to business sectors, integration into IT systems, creating dealership networks and distribution channels and maintaining relationships to aid in the distribution of the marketing intangible
High-Risk IP Business
A High-Risk IP Licensee is defined as a Licensee which carries on an Intellectual Property Business, and the definition meets all of the following three requirements:
1. The Licensee did not create the Intellectual Property Asset which it holds for the purpose of its business, and
2. The Licensee acquired the IP Asset from either;
a. A Connected Person, or
b. In consideration for funding research and development by another person situated in foreign jurisdiction, and
3. The Licensee licenses or has sold the IP Asset to one or more group companies, or otherwise earns separately identifiable gross income (e.g. royalties, license fees) from a foreign group company in respect of the use or exploitation of the IP asset.
Special points to consider
The Licensee is required to have an adequate number of full-time employees, with the necessary qualifications, who permanently reside and perform their activities in the UAE, and would need to provide the following information:
• A business plan showing the reasons for holding the ownership in the Intellectual Property Asset in the UAE;
• Employee information, including;
- level of experience;
- type of contracts;
- qualifications; and
- duration of employment of the Licensee;
● The above information would have to prove that in the UAE there is more than local staff passively holding intangible assets whose creation and exploitation is a function of decisions made and activities performed outside of the jurisdiction. As such, the business would need to evidence that decision making is taking place in the UAE. (Note: periodic decisions made by non- resident directors or board of members would not be sufficient).
• Ministry of Economy
• Competent Authority in Financial Free Zone
• Competent Authority in Free Zone
What licensee has to do?
• File notification with the regulatory authority before due date.
• Only Licensees that earn income from a Relevant Activity during the relevant financial period and that are not exempt from the Regulations are required to demonstrate economic substance in the UAE and file an economic substance return. Economic substance report must be filed within 12 months from the end of the relevant financial period.
Who has to file the notification?
The provisions shall apply to a Licensee that carries out any Relevant Activity.
Failure to comply with regulation:
- Penalties between AED 20,000 to 400,000
- Exchange of information with foreign competent authority
- Suspension or withdrawal or cancellation of license