Economic Substance Regulations is another compliance requirement from the UAE Government. All business entities in UAE need to notify the government whether their business category falls under ESR. The European Union and Organisation for Economic Co-operation and Development (OECD) insists on having a firm ESR to avoid all forms of tax evasion on a global scale.
Why has the UAE introduced Economic Substance Regulations?
In order to fulfill the commitment as member of OECD Inclusive Framework on BEPS and in response to the review of their tax framework by the EU, the UAE had issued ESR as well as the guidance on its application The purpose of the Regulations is to ensure that UAE entities that undertake certain activities (see question 4) are not used to artificially attract profits that are not commensurate with the economic activity undertaken in the UAE.
Applicability of Economic Substance Regulations in the UAE:
The rule came into effect from on 30th April 2019 and is applicable to all Licensee carrying on the “Relevant Activities” in the UAE, including the Free Zone or Financial Free Zone; with effect from the year 2019.
Relevant Activities under ESR:
- Insurance Business
- Investment Fund Management Business
- Lease-Finance Business
- Shipping Business
- Headquarters Business
- Intellectual Property Business
- Holding Company Business
- Distribution & Service Centre Business
Companies Exempted from Economic Substance Regulations
Companies where Government of the State, Government of any Emirate of the UAE, any governmental authority or body of any of them having at least 51% direct or indirect ownership in Company’s shareholding.
How can Beyond Numbers support you in your assessment under ESR?
- We can conduct a preliminary scan of your conducts and activities & assess your position against ESR requirements.
- If ESR is applicable, check the relevant categories to which your activities are related.
- Assist the Licensee to file Information Notification with the Relevant Authorities.