What is Economic Substance Regulation or ESR?
This was probably the most asked question amongst business folks in the U.A.E towards the end of the year 2020.
As part of the UAE’s commitment as a member of the OECD (Organization for Economic co-operation & development) and in response to an assessment of the UAE’s tax framework by the European Union Code of Conduct Group on Business Taxation, the UAE issued Economic Substance Regulations (ESR) . The objective of these resolutions is to determine the requirements and set out the criteria that confirm that a Licensee that is carrying out an activity in the state has economic substance (meaning any business conducted in UAE, there should be an economic effect and substantial purpose in the UAE itself).
The submission of Economic Substance Notification is mandatory for all UAE licensees registered and conducting relevant activities as notified by the Ministry. Failure to comply with these regulations will attract penalties.
The Relevant Activities are as follows:
- 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
If the licensees are doing the above relevant activity, they should ensure the economic substance requirement. Do not be fooled by the nomenclature of the activities and one should understand the categories based on the explanations.
It is advisable to consult a team of professionals on the ESR as these are new regulations which have been implemented in the U.A.E and the law has already been changed and amended for the same. We at AGX can assist in ESR reporting by providing the following services;
- Assessment of ESR applicability
- Timely submission of ESR notification
- Submission of ESR reports