Economic Substance Regulations in the UAE
Economic Substance Regulations
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
Why ESR were introduced in the UAE?
The introduction of Economic Substance Regulations (ESR) in the UAE can be attributed to the following reasons:
- To align with international Anti-Money Laundering standards.
- To address and discourage detrimental tax avoidance practices.
- To eradicate the existence of purely nominal or on-paper companies.
Who is subject to Economic Substance 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
According to Article 8 of Cabinet Resolution No. 31 issued by the Ministry of Finance, any company or licensee involved in one of the aforementioned “Relevant Activities” must adhere to the following obligations:
File a Notification with the relevant licensing authority or regulatory authority under which the company or licensee is registered or governed.
Submit the Economic Substance Return to the same licensing authority or regulatory authority where the company or licensee is registered or governed.
Penalties for Non-Compliance
Non-compliance with the Economic Substance Regulations (ESR), which includes providing inaccurate or incomplete information, can lead to financial penalties in the United Arab Emirates (UAE). The penalties are structured as follows:
- For a failure to demonstrate an actual economic activity, fines can range from AED 10,000 to AED 50,000 in any given fiscal year.
- In the subsequent fiscal year, if non-compliance persists, the fines can escalate, increasing to between AED 50,000 and AED 300,000.
It’s essential for businesses subject to the ESR to ensure they comply with the regulations to avoid these financial penalties and any other potential legal consequences.
Why MARKEF for ESR Filing Services in UAE?
MARKEF offers essential ESR filing services in the UAE to help businesses meet their ESR notification filing requirements promptly. Failure to file by the due date can result in substantial ESR penalties, making compliance crucial.
As a prominent business setup consultancy in Dubai, MARKEF is well-equipped to guide you through the complexities of ESR regulations, providing expert advice tailored to your specific business needs. Our team ensures that your organization fully adheres to all ESR stipulations, mitigating the risk of ESR penalties.
For inquiries related to ESR assessment, return filing, or any questions concerning the Economic Substance Regulations in the UAE, please don’t hesitate to get in touch with us. Our dedicated ESR return submission team and filing experts are ready to assist you and provide valuable insights.
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