UAE Cabinet has introduced a new law namely Economic Substance Regulations (ESR) and its executive regulations have also been issued applicable to all companies registered either in Mainland, or Free Zones in UAE which are licensed to perform certain activities. Stay Tuned for more details. Economic Substance Regulations and its applicability: Article 4 of the ESR identifies any of the following activities to be a Relevant Activity:

• Banking Business
• Insurance Business
• Investment Fund Management Business
• Shipping Business
• Lease-Finance Business
• Distribution & Service Centre Business
• Headquarters Business
• Intellectual Property Business
• Holding Company Business

This Means, any licensee (entity) carrying out any of the above activity will fall under the purview of Economic Substance Regulations who are licensed in any part of UAE i.e. Mainland, Free Zones and Financial Free Zones. WHAT IS INCLUDED IN THE RELEVANT ACTIVITY of Economic Substance Regulations

1. in respect of Banking Business:

• raising funds, managing risk including credit, currency and interest
• taking hedging
• providing loans, credit or other financial services to
• managing capital and preparing reports to investors or any government authority with functions relating to the supervision or regulation of such

2. in respect of Insurance Business:

• predicting and calculating
• insuring or re-insuring against risk and providing Insurance Business services to
• Underwriting insurance and

3. in respect of Investment Fund Management Business:

• taking decisions on the holding and selling of
• calculating risk and
• taking decisions on currency or interest fluctuations and hedging
• preparing reports to investors or any government authority with functions relating to the supervision or regulation of such

4. in respect of Lease-Finance Business:

• agreeing funding
• identifying and acquiring assets to be leased (in the case of leasing).
• setting the terms and duration of any financing or
• monitoring and revising any
• managing any

5. in respect of Headquarters Business:

• taking relevant management
• incurring operating expenditures on behalf of group
• coordinating group

6. in respect of Shipping Business:

• managing crew (including hiring, paying and overseeing crew members).
• overhauling and maintaining
• overseeing and tracking
• determining what goods to order and when to deliver them, organizing and overseeing

7. in respect of Holding Company Business: all activities related to that business; and in respect of Holding Company Business that derives income from other sources other than dividends and capital gains from its equity interest, the state Core Income-Generating Activities shall be those activities associated with the income
8. in respect of Intellectual Property Business:

• where the Intellectual Property Asset is a –

1. patent or an asset that is similar to a patent, research and
2. non-trade intangible (including a trademark), branding, marketing and distribution.

• 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:

1. taking strategic decisions and managing (as well as bearing) the principal risks related to development and subsequent exploitation of the intangible asset generating
2. 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

• carrying on the ancillary trading activities through which the intangible assets are exploited leading to the generation of income from third

9. in respect of Distribution and Service Centre Business;

• transporting and storing component parts, materials or goods ready for
• managing inventories.
• taking orders.
• providing consulting or other administrative

Economic Substance Regulations – KEY DEFINITIONS Distribution and Service Centre Business means any of the following businesses:

• purchasing from a Foreign Connected Person and importing and storing in the State: component parts or materials for goods; or goods ready for sale, and reselling such component parts, materials or goods outside the
• providing services to Foreign Connected Persons in connection with a business outside the State

Headquarters Business: the business of providing any of the following services to one or more Foreign Connected Person by the Licensee.

• the provision of senior
• the assumption or control of material risk for activities carried out by, or assets owned by, any Foreign Connected
• the provision of substantive advice in connection with the assumption or control of risk referred to in paragraph (b) of this

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:

• the Licensee–

1. did not create the intellectual property in an intellectual property asset which it holds for the purposes of its
2. 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 the
• 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.
• the Licensee does not carry out research and development, or branding, marketing and distribution as part of its State Core Income-Generating

Shipping Business: any of the following activities involving the operation of a Ship anywhere in the world other than within the territorial waters of the State:

• the business of transporting, by sea, persons, animals, goods