In continuation to our earlier article published on ‘UAE Economic Substance Regulations (ESR) Report – The Contents of the ESR Report Form’, we described in brief in the UAE ESR Report article about the basic guidelines in place for UAE ESR Report which is likely to take place before the end of the financial year. We discussed about the information that can be expected in the ESR Report form with description of the same for better understanding.Now, we will discuss about how ESR Report test can be considered in the below article. Spectrum Auditing is a pioneer in the field of advising on ESR in UAE. After submission of the ESR Notification, the next important task is to clear UAE ESR test by submitting the UAE ESR Report. If your company is conducting one or more relevant activities mentioned in the UAE ESR Law and earning income by conducting those relevant activities, submission of ESR Report is going to be mandatory to meet the ESR test. As the relevant period (1 January 2019 to 31 December 2019) has already passed, it is now time to focus on arranging your company to be able to meet the ESR test by updating the necessary documentation and submit the ESR Report. Though the Competent Authority has not issued any template of ESR Report, we may not have enough time to submit the Report after the release of the ESR Report template by the Competent Authority. It is always better to be ready with the required information beforehand than wait for the template to be released and prepare the information. For any company to be able to meet the Economic substance test, following are the few important areas to focus. The most important question is how to consider Economic Substance Test (ESR Test) in UAE and what are the documentation requirements to meet the Test?Following are some of the important areas to demonstrate the Economic substance to be able to meet ESR Test in UAE: (a) If the entity conducts State Core Income-Generating Activity in the State: For each of the relevant activity, there are certain State Core Income-Generating Activities mentioned in the ESR law, the entity needs to make sure that those activities are conducted within UAE to be able meet UAE Economic Substance Test.Read our article on ‘Activities under Economic Substance Regulations’ to know about the specific activities covered in UAE ESR and a complete guide in detail on ‘The UAE Economic Substance Regulations’ to get acquainted with the subject. (b) Board Meetings:if the entity is directed and managed in the State in relation to that activity. This is considered as satisfied if the following conditions are met:

• the Licensee’s board of directors meets in the State at an adequate frequency having regard to the amount of decision-making required at that level. Here adequate frequency is more important, one can go with the number of meetings mentioned in the Memorandum of Association or other governing document or as required by the need of the business.

• at such board meetings mentioned above, there is a quorum of directors physically present in the State. The directors should be physically present here in UAE to meet this condition. Hence maintaining sufficient documentary evidence like boarding passes of the directors if they are not UAE residents and accommodation bills while they were in UAE to substantiate this fact is important.

• the meetings are recorded in written minutes and signed by the directors attending the meetings. Hence, maintenance of appropriate minutes of the board meetings in a proper way becomes most important.

• the minutes of such board meetings described aboverecord the making of strategic decisions of the Licensee at the meeting. The minutes should record all the decisions that are taken during the meeting like business plans, yearly budget plans, new product line or service line considered, changes in the senior management team, etc,.

• the directors of the Licensee have the necessary knowledge and expertise to discharge the duties of the board.

• the minutes of all board meetings and the records of the Licensee are kept in the State. Those minutes of the meetings shall be kept physically in the office in UAE.

• In the case of branch offices and representative offices of foreign companies and other commercial companies that do not have a board of directors but rather are managed and operated by a single manager, such manager shall be physically present in the State when taking key decisions relating to the management and operations of these entities.

(c) Employees:Based on the level of the Relevant Activity (you can refer to our specific articles on relevant activities be it Holding Company Business or Shipping Business or Headquarters Business or Lease Finance Business or Investment Fund Management Business or Insurance Business), if there is an adequate number of qualified full-time employees in relation to that activity who are physically present in the State (whether or not employed by the Licensee or by another entity and whether on temporary or long-term contracts), or adequate level of expenditure on outsourcing to third party service providers, whose activities, employees, expenditure, and premises are in the State; and these activities, employees, expenditures and premises are adequate for carrying out the Relevant Activity being outsourced. (d) Operating Expenses:if there is adequate operating expenditure incurred by it in the State, or adequate level of expenditure on outsourcing to third party service providers whose activities, employees, expenditure and premises are in the State; and these activities, employees, expenditures and premises are adequate for carrying out the Relevant Activity being outsourced. (e) Physical Assets:if there are adequate physical assets in the State or adequate level of expenditure on outsourcing to