Economic Substance Regulations
The UAE Economic Substance Regulations (ESR) are applicable to all companies registered in the Mainland or Free Zones or Financial Free Zonesin UAE which are licensed to perform activities as mentioned below:
- 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
Spectrum’s vast resource of blogs pertaining to Economic Substance Regulations which are updated frequently will give you further information about the activities that are considered in a particular relevant activity, the definition of each activity, what is an Economic Substance Test, who is a licensee, who is exempt from ESR, etc are all discussed in detail. Explore our knowledge base to equip yourself further on this subject or you can just simply mail us to guide you further.
Economic Substance Regulation (ESR) in UAE
The United Arab Emirates (UAE) has become an increasingly attractive global business hub for companies due to various transparent laws, favourable tax regulations and an investment-friendly environment.
Since the UAE is a business-friendly country and has the advantage of tax laws, many companies are setting up with the intention to shift profits from various business activities to outside the UAE. Sometimes this creates problems in the country’s tax transparency and globally as well. To prevent this kind of harmful tax practices, The UAE has issued a set of regulations called Economic Substance Regulations as a part of UAE’s commitment as a member of the OECD (Organization for Economic Cooperation and Development) and as a response to an assessment of the UAE’s tax framework by the European Union Code of Conduct Group (EUCOCG) on Business Taxation. The UAE introduced Economic Substance Regulations (ESR) vide Cabinet Decision No. 57 of 2020 effective from January 01, 2019.
What is the Purpose of the Economic Substance Regulations Report?
The purpose of ESR is to prove the Economic presence and adequate substance in UAE for the companies established in UAE onshore, freezone and certain other business forms that carry out any of the defined “Relevant Activities” listed in ESR.
Economic Substance Test
Economic Substance Test is a detailed study to analyze a business’s activity from the view of Economic Substance Regulations to determine whether the business falls under the requirement of ESR or not. There are 9 relevant activities listed under ESR. If an entity undertakes any of the relevant activities, then it will come under ESR regulations and have to comply with all the regulations of the law. A ‘substance over form’ approach must be adopted when determining whether an entity is carrying out any of the Relevant Activities. The assessment is required to be made for individual UAE entities.
Relevant Activities Under Economic Substance Regulations
The following are the Relevant activities listed under ESR
- Banking Business
- Insurance Business
- Investment Fund Management Business
- Lease-Finance Business
- Headquarters Business
- Shipping Business
- Holding Company Business
- Intellectual Property Business
- Distribution and Service Centre Business
Economic Substance Notification
UAE entities that conduct any one or more of the Relevant Activities listed under ESR must notify the Ministry of Finance (MoF) through its ESR portal by filing an Economic Substance Notification within 6 months from the end of the reportable period (Financial Year). As a part of this filing, an Entity will report legal information, regulatory authority, reportable period, type of relevant activities, and income generated from carrying out the relevant activities for the reportable period.
Economic Substance Report
An Entity that conducts Relevant activity and earns income out of it is required to file an ESR report via the Ministry of Finance’s online ESR portal within 12 months from the end of the reportable period (Financial Year).
With this reporting, an Entity discloses various information including financial data to the ministry. The important details includes Basic details, type of relevant activity conducted, reportable period, CIGAs applicable, relevant income, costs and profits earned, details of parent, ultimate parent company and UBOs, number of full-time employees, direction and management of the company, meetings etc.
Submission Deadline for Notifications and Economic Substance Reports
ESR notification is required to be submitted within 6 months from the end of the reportable period (Financial Year) via the Ministry of Finance’s(MOF) online ESR portal.
ESR report is required to be submitted within 12 months from the end of the reportable period (Financial Year) via the Ministry of Finance’s (MOF) online ESR portal.
Penalties under the Economic Substance Regulations
Type of Offence | Amount of Penalty |
1. Failure to submit the ESR Notification | AED 20,000 |
2. Failure to submit the ESR Report | AED 50,000 |
3. Failure to meet the Economic Substance Test | 1st year – AED 50,000
2nd consecutive year – AED 40,000 |
4. Failure to provide accurate and complete information | AED 50,000 |
Who is an Exempted License
The ESR Regulations exclude certain forms of entities from the requirement to meet the Economic Substance Test. For the purpose of the ESR Regulations, an Exempted Licensee includes any of the following entities registered in the UAE and which carry out a Relevant Activity:
(1) an Investment Fund;
(2) an entity that is tax resident in a jurisdiction other than the UAE;
(3) an entity wholly owned by UAE residents and meets the following conditions:
(a) the entity is not part of a MNE Group;
(b) all of the entity’s activities are only carried out in the UAE;
An Entity making an Exemption claim is only required to file a notification along with supporting documents to substantiate the exemption claim
Who is exempt from filing a Notification?
Licensees who are not conducting any relevant activity under ESR are exempt from filing ESR Notification.
Who is exempt from filing a Report?
Exempted licensees and Licensees who conduct relevant activity and did not earn relevant income for the reportable period are not required to file an ESR report.
Economic Substance Regulations Filing in Dubai UAE
Economic Substance Regulations Filing Company in Dubai UAE
Economic Substance Regulation filing company in Dubai is a company that provides all Economic Substance Regulation related services in Dubai. Spectrum Auditing is a leading Auditing and Taxation company in Dubai. We have a dedicated professional team for assisting companies across UAE with the ESR-related compliances and filing.
Different types of Economic Substance Regulations filing services that we are offering in Dubai UAE
We are a leading corporate service provider in Dubai. We offer various ESR-related services that are listed below
- Economic Substance Test (ESR Assessment)
- Economic Substance Notification filing
- Economic Substance Report filing
- Assisting in data and financials preparation for the filing of ESR Notification and ESR report
- Assisting in ESR audit
- Providing Economic Substance Regulations related advisory
- Assisting in filing ESR appeals
- Assisting in ESR documentation
Our Economic Substance Regulations Filing Process
- Understanding the business via meeting with the experts
- Detailed Economic Substance Test
- Assistance in documentation
- ESR Notification filing
- ESR report filing
- Follow up with Regulatory authority in case of any issues
- Assistance in filing ESR appeal in case of any penalties imposed due to non-compliance with ESR requirements
Why Choose Spectrum For Economic Substance Regulations Report Services in UAE?
We Spectrum Auditing is a team of qualified finance professionals who offer various corporate services including various ESR related services listed above. We have a dedicated team who will assist you with all the ESR related compliances and filings. We have been in the field of providing ESR services from the beginning of ESR came into force across UAE.
Benefits Of Hiring Our ESR Filing Company in Dubai UAE
We offer all the ESR-related services with the help of our qualified finance professionals’ team. Hiring an expert ESR auditing company will be the best option to take care of all the ESR-related compliances of your company and will assist you with all the requirements.