Economic Substance Regulations - ESR
ESR Compliance
On 30 April 2019, the UAE Cabinet issued the Cabinet of Ministers Resolution No. 31 of 2019 concerning Economic Substance Regulations (ESR) requiring all in-scope UAE entities to comply with the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) to ensure that profits are accounted by the entities where the actual economic activities are conducted and value created.
According to the regulations, the UAE has been added to the European Union‘s list of non-cooperative tax jurisdictions due to concerns raised by the European Commission. UAE’s legislation should also be aligned with the OECD’s Base Erosion and Profit Shifting (BEPS) action plan through the regulations.
ESR requires all businesses having a commercial license, certificate of incorporation or similar permits issued by any regulatory authority in UAE (licensees) carrying out one or more Relevant Activity to substantiate adequate economic substance in the UAE. Whereas, ESR excludes UAE licensees with direct or indirect holding of at least 51% by any UAE Government, Governmental authority and/or body.
- Assist in ESR Notification Preparation and Submission to Authorities
- Assist in ESR Report Preparation and Submission to Authorities
- ESR Impact Assessment and Gap Analysis
Penalties for Non-Compliance
Failure to comply with the ESR (including providing inaccurate or incomplete information) may result in fine of between AED 10,000 and AED 50,000 in any fiscal year for a failure to demonstrate an actual economic activity. The fines increase to between AED 50,000 and AED 300,000 for the subsequent fiscal year.