Today we will discuss about how under Economic Substance Regulations (ESR), the Regulations apply to companies and other business forms registered in the UAE, including in a Free Zone or in a Financial Free Zone, that carry out any of the following Relevant Activities:
- Banking Businesses
- Insurance Businesses
- Investment Fund Management Businesses
- Lease-Finance Businesses
- Headquarters Businesses
- Shipping Businesses
- Holding Company Businesses
- Intellectual Property Businesses
- Distribution and Service Centre Businesses
UAE businesses are expected to use a ‘substance over form’ approach to determine whether or not they undertake a Relevant Activity and, as a result, are within the scope of the Regulations. This determination would require the UAE business to not only consider the activities stated under their commercial licence or registration certificate but also to assess the activities carried out during a financial period.
It is not required that a UAE business is actively engaged in any of the above business categories for it to be considered as carrying on a Relevant Activity.
For example, the passive receipt of income under a finance lease would be considered as carrying on a Lease-Finance Business.
Licensees can undertake more than one Relevant Activity during the same financial period. This would require the Licensee to demonstrate economic substance in respect of each Relevant Activity, unless the other Relevant Activities are ancillary to a main Relevant Activity. In certain instances the Licensee can consolidate the ancillary Relevant Activities under the main Relevant Activity to prevent duplicate reporting.