DIFC Amends Laws to Comply with OECD Transparency & Exchange of Information Forum (Dubai International Financial Centre Authority)
On 28 May 2017, the Dubai International Financial Centre Authority announced that the DIFC Laws Amendment Law, DIFC Law No. 1 of 2017 (the “New Law”) was enacted. The New Law amends certain provisions of the Companies Law of 2009, General Partnership Law of 2004, Limited Partnership Law of 2006, and Limited Liability Partnership Law of 2004 (the “Existing Laws”) relating to accounting records.
The changes set out in the New Law are designed to ensure that DIFC fully complies with the requirements set out by the OECD Global Forum on Transparency and the Exchange of Information for Tax Purposes.
Who does the New Law apply to?
All DIFC companies, general partnerships, limited partnerships and limited liability partnerships governed by the Laws are impacted by the changes brought into force by the New Law.
The New Law inserted a new definition of “Accounting Records” into each of the Existing Laws and amended the schedule of contraventions and fines in each of the Existing Laws. The changes provide more clarity and rectify some inaccurate references to legal provisions.
A new defined term of “Accounting Records” replaces previous references in the Existing Laws to “accounting records” and “accounting records including underlying documents”. These previous terms were vulnerable to inconsistent interpretation and the new defined term is as set out in the International Standard on Accounting.
“Accounting Records” are now defined as:
“records and underlying documents comprising initial and other accounting entries and associated supporting documents such as:
(b) records of electronic funds transfers;
(e) the general and subsidiary ledgers, journal entries and other adjustments to the financial statements that are not reflected in journal entries; and
(f) work sheets and spread sheets supporting costs allocations, computations, reconciliations and disclosures.”
The new definition is identical to the “Accounting Records” definition used by the Dubai Financial Services Authority. It clarifies the type of accounting documentation that each DIFC entity must retain and ensures consistency as to retention obligations across all DIFC entities, whether regulated or non-regulated.
The list of contraventions for which fines are payable by DIFC companies has been expanded to include the following:
(a) a company that fails to file its accounts as required will be liable to pay a fine of US$5,000; and
(b) a company that fails to send an auditor’s statement to its shareholders or members as required will be liable to a fine of US$1,000.
In addition, the fine for the existing contravention of non-compliant maintenance of Accounting Records by a Recognised Company (i.e. a branch of a foreign company) has been increased from US$2,000 to US$10,000. This increase emphasizes the importance that the DIFC places on branches of foreign companies complying with DIFC requirements as to maintenance of Accounting Records, irrespective of requirements applicable to the parent company in its jurisdiction of origin.
Limited Liability Partnerships
The list of contraventions for which fines are payable by DIFC limited liability partnerships has been expanded to include the following:
(a) a limited liability partnership that fails to file its accounts as required will be required to pay a fine of US$5,000;
(b) the fine applicable in respect of any obstruction to the activity of the auditor of a limited liability partnership now applies to any obstruction by a member or any other person, in addition to that of the limited liability partnership itself.
In addition, the failure to register a foreign limited liability partnership carrying on business in the DIFC has been deleted from the list of contraventions without fines stipulated in the Limited Liability Partnership Law of 2004.
The New Law came into force with immediate effect upon its enactment. The copies of the Existing Laws which are available in the Legal Database available on the DIFC website (and which can be accessed at https://www.difc.ae/laws-regulations/legal-database are up to date and reflect the changes set out in the New Law.