As a result of European Commission concerns, the United Arab Emirates (UAE) was added to the European Union’s list of non-cooperative tax jurisdictions. In response, the UAE introduced Economic Substance Regulations (ESR) vide Cabinet Decision No. 57 of 2020, effective from 1 January 2019.
ESR effectively imposes a requirement for UAE entities (including offshore companies and branches of local and foreign companies) that carry out and earn income from any of the Relevant Activities to maintain economic substance in the UAE specific to each Relevant Activity. Annual filing requirements must be met or organizations risk penalties for non-compliance.
This document highlights requirements under ESR and provides information on notification and reporting compliances, including some of the practical challenges associated with ESR.
The UAE has introduced new compliance needs related to Economic Substance Regulations in UAE by passing Cabinet Order No.31 of 2019, the “Regulations” which come into result for financial year starting on or after January 1st 2020. The country’s cabinet passed this resolution last month and it is now law that all businesses c in an wealth with valued over AED 100 million must maintain full transparency regarding who their customers are. This will assist decrease corruption among government officials because they’ll know precisely where every penny goes.
The UAE was required to institute the Economic Substance Regulations (ESR) as part of an agreement made by it with other countries who are also members in this organization. These regulations hearten businesses from all over world share their ideas on how finest can we protect ourselves against tax avoidance schemes which might lead up being beard out or even come away full free while still making money off our hard work.
The introduction of ESR in countries with low or no corporate taxes is an attempt by those governments to combat harmful tax practices such as unlawful avoidance and evasion.
The Economic Substance Regulations in UAE is applicable to all entities holding a permit to operate in the UAE from any licensing authority. These entities include onshore, free zone, and offshore companies that carry out the below mention relevant activity:
- Banking Business
- Insurance Business
- Investment Fund management Business
- Lease – Finance Business
- Headquarters Business
- Shipping Business
- Holding Company Business
- Mental property Business (“IP”)
- Distribution and Service Centre Business
The ESR has the following compliance and reporting needs:
