Economic Substance Regulation (ESR) Filing Service
UAE Economic Substance Regulation (ESR) Advisory and ESR Filing Services in Dubai, UAE
Annual Notification
ESR Annual Report
Failure to submit the return before the due date
What is Economic Substance Regulation (ESR)?
Economic Substance Regulations(ESR) Dubai, UAE was brought out via Resolution 31 of 2019 in April of the same year.
The Economic Substance Regulation serves as a guideline for improving the nation’s tax frameworks and will make companies more accountable for maintaining an economic presence in the UAE.
The Economic Substance Regulations(ESR) ensure that all eligible Onshore and Free Zone entities will demonstrate adequate economic presence within the UAE.
The Economic Substance Regulation serves as a guideline for improving the nation’s tax frameworks and will make companies more accountable for maintaining an economic presence in the UAE.
The Economic Substance Regulations(ESR) ensure that all eligible Onshore and Free Zone entities will demonstrate adequate economic presence within the UAE.
Real Economic Activities
The Economic Substance Regulations (ESR) in the UAE, introduced in 2019, ensure companies show real economic activities with adequate staffing, spending, and physical presence.
Aligning with Global Standards
The ESR aligns with the UAE's commitment to the Base Erosion and Profit Shifting (BEPS) initiative by the OECD, upholding international tax standards.
Who It Affects
ESR applies to UAE-registered and foreign companies in the UAE engaged in banking, insurance, investment fund management, leasing, headquarters, shipping, and intellectual property activities.
Compliance Requirements
UAE entities, including offshore and branches of local and foreign companies, must meet specific economic substance requirements. Non-compliance can lead to penalties.
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Frequently asked questions
When Did the Economic Substance Regulations Enter into Force?
The UAE implemented the Economic Substance Regulations on April 30th, 2019, through a Cabinet of Ministers Resolution. Guidance on applying these regulations was further provided in a Ministerial Decision released on September 11th, 2019.
Following consultations with the EU and OECD, the UAE amended the ESR regulations, with the changes coming into force on August 10th, 2020, via another Cabinet of Ministers Resolution. Additional detailed guidance on these amendments was issued through Ministerial Decision No. 100 of 2020, which expanded the definition and provided a comprehensive guide on Relevant Activities for ESR compliance.
What Are the Relevant Activities?
The Economic Substance Regulations (ESR) in the UAE apply to businesses engaged in the following activities:
- Banking
- Insurance
- Investment Fund Management
- Lease-Finance
- Headquarters Businesses
- Shipping
- Holding Company
- Intellectual Property Businesses
- Distribution and Service Centres
UAE businesses operating in these sectors must use the "Substance Over Form" approach to determine their eligibility for ESR guidelines. This means they must evaluate all activities performed in one financial year, not just those listed on their commercial license.
Passive Income Considerations
Businesses do not need to be actively engaged in these activities to be subject to ESR. Even passive income, such as income from a finance lease, can make a business liable to follow ESR in the UAE.
Multiple Relevant Activities
If a business carries out multiple relevant activities, it must demonstrate economic substance for each one. However, ESR regulations in Dubai allow companies to consolidate ancillary relevant activities to prevent multiple or duplicate reporting.
Who is a Licensee?
A Licensee is any juridical person or unincorporated business or partnership registered and eligible for ESR in the UAE. This includes all individuals, entities, and partnerships engaging in a Relevant Activity in the UAE. According to the Economic Substance Regulations, a Licensee can be one of the following:
- Limited Liability Company (LLC)
- Private Limited Company
- Public Limited Company
- Joint Venture Company
- Partnership Firm
However, the following are not considered Licensees under the Economic Substance Regulations in Dubai:
- Natural Person
- Sole Proprietorship
- Trust
- Foundation
Who is Subject to the Economic Substance Regulation in the UAE?
The Economic Substance Regulation (ESR) in the UAE applies to all business entities and partnerships engaging in a Relevant Activity within the UAE. This includes entities in both Free Zones and Financial Free Zones.
- Scope of Application: ESR applies to all entities located onshore and in Free Zones if they generate income from a Relevant Activity. This includes areas like the DIFC, where all entities conducting a Relevant Activity must comply with ESR, regardless of their business structure or size.
- Branches and Parent Companies: Branches registered in the UAE are considered extensions of their parent companies and do not have separate legal existences. Therefore, if a parent company is in the UAE, it must file a composite Notification and Report including all its branches.
- Foreign Branches: A branch of a foreign entity must comply with ESR unless the income is taxed in the head office's jurisdiction. If the branch’s income contributes to the parent office’s taxable income, the branch is subject to ESR. However, if the branch is registered outside the UAE and its income is taxed under a foreign jurisdiction, consolidation of activities for ESR compliance is not required.
- Multinational Groups: ESR regulations also apply to entities belonging to foreign multinational groups operating within the UAE.
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