The UAE Economic Substance Regulations

A-Z Consultancy provides consulting and filling services related to ESR. UAE entities will need to assess whether and which of their activities fall within the scope of the economic substance regulations, and for this it is advisable to engage consulting services.

economic substance regulations

The UAE issued economic substance regulations (the “Regulations”) in April 2019, amended by Cabinet Resolution No.57 of 2020 in August 2020, which introduced a requirement for UAE entities to maintain an adequate “economic presence” in the UAE relative to the activities they undertake.

The UAE economic substance requirements apply to all UAE onshore and free zone companies and certain other business forms that undertake one or more “Relevant Activity” for financial years commencing on or after 1 January 2019.

Entities that meet the requirements to be treated as “exempt” do not need to demonstrate economic presence in the UAE. However, such entities are required to file a Notification and provide sufficient evidence to support their exempt status.

The introduction of economic substance requirements brings the UAE in line with other jurisdictions that have recently issued economic substance legislation (e.g. Cayman Islands, Bermuda, etc.), and affirms the UAE’s commitment to addressing concerns around the shifting of profits derived from certain mobile business activities to “no or nominal tax jurisdictions” without corresponding local economic activities.

UAE entities will need to assess whether and which of their activities fall within the scope of the economic substance regulations, and how to ensure they meet the economic substance requirements in respect of each Relevant Activity. This is both a qualitative and quantitative assessment that would involve consideration of operational, financial, tax / transfer pricing, legal and governance matters.

What are the Relevant Activities that need to be reported?

  • Banking activities
  • Insurance activities
  • Fund management activities
  • Financing or leasing activities
  • Headquarters activities
  • Shipping activities
  • Holding companies
  • Intellectual property (“IP”) holding or exploitation
  • Distribution of goods purchased from foreign connected persons
  • Provision of services to foreign connected persons
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