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Services on Economic Substance Regulations Reporting2023-03-01T18:44:03+04:00

Economic Substance Regulations Reporting

All the entities are required to maintain a fair “economic presence” in the nation applicable to the activities they engage in, according to the economic substance regulations put out by the UAE in 2019.

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Your business is just yours. You choose it. You make it happen! You live it. Therefore, it’s your responsibility to abide by the guidelines and laws issued by Government bodies and meet the requirements set by various authorities of the country your business exists in to successfully run the operations. There are tons of them. After setting up business in Dubai or any of the emirates of the UAE, all the entities are required to maintain a fair “economic presence” in the nation applicable to the activities they engage in, according to the economic substance regulations (the “Regulations”) put out by the UAE in 2019.

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Understand “ESR”

The commitment as a member of the OECD Inclusive Framework and the urge to respond to an assessment of the UAE’s tax framework by the European Union Code of Conduct Group on Business Taxation drove the UAE to introduce Economic Substance Regulations (Cabinet of Ministers Resolution No. 31 of 2019), (the “Regulations”) on 30 April 2019. Guidance on the application of the Regulations was issued on 11 September 2019 (Ministerial Decision No. 215 of 2019), and Cabinet Decision No. 58/2019 on the Determination of Regulatory Competencies lists the Regulatory Authorities tasked with the administration and enforcement of the Regulations. Amendments to the Regulations were done by Cabinet of Ministers Resolution No. (57) of 2020 on 10 August 2020, and updated Guidance was issued on 19 August 2020 (Ministerial Decision No. (100) of 2020 The Regulations require UAE onshore and free zone companies and certain other business forms that carry out any of the defined “Relevant Activities” listed below to keep and exhibit a sufficient “economic presence” in the UAE relative to the activities they undertake (“Economic Substance Test”).

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

The Regulations are applicable for all those entities that got into business activities on or beyond the 1st of January 2019. Entities that are within the scope of the Regulations have to submit an annual Notification form to their Regulatory Authority, and complete and submit to the same Regulatory Authority an Economic Substance Report within 12 months from the end of their financial year (e.g. 31 December 2020 for entities with a financial year ending 31 December 2019). An entity doesn’t have to meet the Economic Substance Test and file an Economic Substance Report for any financial period in which it has not earned income from a Relevant Activity or if it meets the conditions for being exempt. A Notification form must be submitted regardless. Failure to comply with the Regulations can cause penalties, spontaneous exchange of information with the Foreign Competent Authority (as defined in Article 1 of the Regulations), and other administrative sanctions viz. suspension, revocation or non-renewal of the entity’s trade licence or permit.

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Economic Substance Regulations Reporting Services in Dubai, UAE

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According to the regulations, the UAE-based free zone, and financial free zone companies in that carry out the relevant functions mentioned in the guidance are bound to present satisfactory economic presence by meeting the UAE economic substance test. The companies are required to notify and submit an annual UAE economic substance report to the regulatory authorities if they are meeting the criteria to avoid hefty penalties. A caveat: The regulation is new, and we have seen many companies failing to comply with the standards and providing inaccurate or incomplete information, leading to heavy penalties. Luckily, you can delegate the complicated task to an experienced and best UAE-based Economic Substance Advisory firm. The expert assistance from Economic Substance Regulations Reporting service professionals not only keeps you from committing such grave mistakes but also ensures Economic Substance compliance.

Pass the Buck to Adam Global

With members situated across 200+ jurisdictions covering unique practice areas, Adam Global is one of the leading business setup consulting firms in Dubai, UAE that can take care of all the complex requirements of the businesses in connection with the Economic Substance Reporting in Dubai, UAE. Our highly qualified advisors can help the companies know whether they are subject to the regulations. If they do, then we assess the operation of the companies across all the emirates (onshore/free zones) to figure out if the current activities are expected to fulfill the requirements of the UAE Economic Substance Reporting. We can advise companies with effective solutions to adhere to the regulations. You can count on our pro team of Economic Substance Regulations Reporting specialists in Dubai for all your ESR requirements, from assessing your eligibility for ESR to preparing the notification and the report to be submitted to the concerned Regulatory Authority.

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What is the objective behind filing the ESR Report?2021-12-23T07:26:03+04:00

Corporate entities and partnership firms (that are not an Exempted Licensee and that derives Relevant Income from any of the Relevant Activities) during a Reportable Period are required to file an Economic Substance Report. And the purpose is straightforward – to inform the National Assessing Authority about the Licensee and the income, expenditure, assets, employees and governance in connection with the relevant activities in the UAE performed by them.

Is it allowed to file a single Economic Substance Report for multiple Licensees?2021-12-23T07:26:41+04:00

No, each Licensee has to file a separate Economic Substance Report, even if they are part of a consolidated group for financial reporting or VAT purposes.

What are the reporting requirements for branches?2021-12-23T07:27:06+04:00

A UAE corporate entity with multiple branches registered in the UAE is required to report the Relevant Activities for itself as well as its UAE branches in one composite Economic Substance Report. However, a UAE branch of a foreign entity needs not to file an Economic Substance Report in case its Relevant Income is reported and subject to tax in the jurisdiction of the foreign parent/head office. Where a UAE entity is engaged in a Relevant Activity through a foreign branch or permanent establishment that is subject to tax in the foreign jurisdiction, the UAE entity should not report in its Economic Substance Report the Relevant Income, assets, expenditure and human resources of the foreign branch or permanent establishment.

Is there any deadline for filing the Economic Substance Report?2021-12-23T07:27:29+04:00

Yes, there is. Eligible entities/licensees are supposed to file their ESR within 12 months from the end of their financial year.

Who prepares Economic Substance Notification?2021-12-23T07:27:57+04:00

All ADGM Licensees as well as Exempt Licensees that are involved in more than one “Relevant Activities” must file a Notification annually, within six months of the end of the Reportable Period.

How should I submit an Economic Substance Report?2021-12-23T07:28:28+04:00

You can duly fill the Economic Substance Report online and submit it electronically on the Ministry of Finance portal itself.

Could you shed some light on Exempted Licensees?2021-12-23T07:28:55+04:00

There are some Abu Dhabi Global Market (ADGM) Licensees that are exempt from the requirement to submit an ES Report and demonstrate Economic Substance in the UAE for the Reportable Period. The list includes the entities that are:

  • Entirely owned by UAE nationals or UAE resident individuals and that fulfill the conditions – one, it is not part of an MNE Group (as defined in the ESR), and two, it only operates in the UAE;
  • Investment Funds as defined in the Regulations;
  • Special purpose vehicles or an investment holding company or an Investment Fund as defined in the Regulations;
  • Tax resident in a jurisdiction besides the UAE;
  • A branch of a foreign company and all Relevant Income of the UAE branch is subject to tax in the jurisdiction of the foreign company.
What are the penalties in case I fail to submit the notification?2021-12-23T07:34:51+04:00

Non-compliance with ESR may lead the entities to pay fines up to AED 50,000. Below is the table illustration of ESR non-compliance penalties:

Scenario Fine in case of ESR Notification (AED) Fine in case of ESR Reporting (AED)
Due date missed 20,000 50,000
Incorrect information provided 50,000 50,000

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