New Economic Substance Regulations for UAE Companies

The UAE is a popular destination among investors and entrepreneurs to start or conduct their business due to its favourable tax regime. However, a European Union (EU) review of the UAE’s tax framework in early 2019 resulted in the UAE being included in the EU Blacklist. The EU Blacklist is a list of non-cooperative jurisdictions for tax purposes. In response to the review and to remove itself from the EU Blacklist, the UAE introduced new Economic Substance Regulations for UAE companies. Since then, the audit firms in UAE, tax consultancies have been helping businesses comply with this new structure.

The Economic Substance Regulations (the Regulations) was issued on April 30, 2019, and further Guidance on the application of the Regulations was released on September 11, 2019. By implementing these Regulations, the UAE is making positive progress towards meeting the EU’s requirements to be removed from the EU blacklist.

What are Economic Substance Regulations (ESR)?

Economic Substance Regulations are introduced by countries that have low or no corporate taxes. This is done to prevent harmful tax practices such as unlawful avoidance or evasion of tax by entities operating within these countries. The purpose of ESR is to address concerns around the shifting of profits collected from certain activities that do not correspond to local economic activities undertaken in countries with low or no corporate taxes.

Who does Economic Substance Regulations UAE apply to?

The UAE Economic Substance Regulations apply to all businesses that covers one or more “Relevant Activities” listed by the UAE government. These include onshore, free zone, and offshore companies, branches, partnerships, and other business forms that have a license to operate in the UAE. However, companies that are directly or indirectly owned (at least 51%) by a UAE Government body or authority are exempt from the Regulations.

The following businesses are considered as “Relevant Activities” under the Regulations:

  • Banking Business
  • Insurance Business
  • Investment Fund management Business
  • Lease – Finance Business
  • Headquarters Business
  • Shipping Business
  • Holding Company Business
  • Intellectual property Business (“IP”)
  • Distribution and Service Centre Business

What are the compliance requirements of an entity carrying out Relevant Activities?

  • Notification form to Regulatory Authority
    Businesses should submit a notification form to their respective Regulatory Authority within the prescribed deadline.
  • Filing of annual ESR Return
    Businesses earning an incoming from any of the above-mentioned Relevant Activities, during the financial period, must show proof of Economic Substance in the UAE and must file an ESR return within 12 months from the end of the financial period. They are also required to meet the Economic Substance Test (EST).

These requirements must be filed with the relevant Regulatory Authority. The Regulatory Authorities set their respective requirements, deadlines, and formats for notification filing. Delay or failure to submit notification form and ESR returns will incur heavy penalties. To avoid any penalty or fine, you can partner with a Tax Consultant in Dubai for ESR compliance.

Below are the deadlines announced by a few Regulatory Authorities for ESR notification submission:

Regulatory AuthorityDue date for submission of ESR notification
Dubai World Trade CentreJuly 7, 2020
Dubai Multi Commodities Centre (DMCC)June 30, 2020
Department of Economic DevelopmentJune 30, 2020
Dubai International Financial CentreJune 30, 2020
Ajman Free Zone AuthorityJune 30, 2020
Sharjah Airport Free Zone AuthorityJune 30, 2020
Hamriyah Free Zone AuthorityJune 30, 2020
Ras Al Khaimah Economic Zone (RAKEZ) AuthorityJune 30, 2020
Ras Al Khaimah International Corporate Centre (RAKICC) AuthorityJune 30, 2020
Umm al Quwain Free ZoneJune 30, 2020

To know more about the new Economic Substance Regulations for UAE companies or to get assistance with ESR compliances, feel free to contact Shuraa Tax Consultants and Accountants, the most renowned tax agency in UAE. Our UAE tax expert team will review the applicability of the Regulation to your company and will assist you through compliance fulfilment and reporting on time.

You can get in touch with our experts on +97143425933, +971506923280, +971 50 579 5019. You can also email us at info@shuraatax.com.



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