Economic Substance Regulations In The UAE

Economic Substance Regulations

The UAE has enacted Economic Substance Regulations (“ESR”) that applies in all UAE jurisdictions, including all free zones and financial free zones such as the DIFC. The businesses in the UAE will now have to prove their Economic and Substantial existence in the UAE and have to apply the substance over form approach to such a review. As per Article 8 of this regulation the Licensees need to file Economic Substance Notification and Economic Substance Return with its Regulatory Authority within the declared due dates.

Following resolutions and decisions have been passed by the UAE Ministry of Finance in this regards:

  • Cabinet of Ministers Resolution no. 31 of 30th April 2019 concerning Economic Substance Regulations. You can refer the same via UAE Cabinet of Ministers Resolution No. 31 Of 2019
  • Ministerial Decision no. 215 of 11th September 2019 on the Issuance of Directives for the Implementation of the Provisions of the Cabinet Decision No. 31 of 2019 Concerning Economic Substance Requirements. Ministerial Decision No. 215 for the year 2019
  • Cabinet Resolution no. 58 of 4th September 2019 Determining the Regulatory Authorities Concerned with the Business Mentioned in Cabinet Resolution No (31) of 2019 Concerning Economic Substance Regulations. UAE Cabinet of Ministers Resolution No. 58 of 2019

First reportable period

  • The UAE economic substance regulations apply to entities with a financial year commencing on or after 1 January 2019.
  • An annual notification requirement (from 1stJan 2020) is applicable to an entity that undertakes a Relevant Activity (irrespective of whether the entity qualifies for an exemption under the Regulations or has earned income from the Relevant Activity during the relevant financial period) -;
  • In addition, entity that undertakesand earn income from a Relevant Activity, and is not exempted under the Regulations, is also required to file an Economic Substance Return(within 12 months from the end of its relevant financial period).

As per Cabinet Resolution No. 31 of 2019, Relevant Activity means following:

  • BankingBusinesses
  • InsuranceBusinesses
  • Investment Fund ManagementBusinesses
  • Lease-FinanceBusinesses
  • ShippingBusinesses
  • Holding CompanyBusinesses
  • Intellectual Property Businesses
  • Headquarter Businesses
  • Distribution and Service Centre Businesses
  • Please refer to the UAE Economic Substance Relevant Activities Guide issued by the Ministry of Finance for further information and explanation on each of the above Relevant Activities.

Failure to Notify: AED 10k to 50k Failure to provide accurate or complete information:

  • Penalty of AED 10k to 50k; and
  • Deemed failure to demonstrate economic substance in the UAE Failure to demonstrate sufficient economic substance in the UAE for the relevant Financial Year: First failure
  • Penalty of AED 10k to 50k; and
  • Information exchange with foreign competent authority of: (1) parent company, (2) ultimate parent company, and (3) ultimate beneficial owner. Second consecutive instance of failure
  • Information exchange with foreign competent authority of: (1) parent company, (2) ultimate parent company, and (3) ultimate beneficial owner; and
  • Penalty of AED 100k to 300k; and
  • Trade / commercial licence could be: suspended, withdrawn or not renewed.

We at Nadeem and Umendra Chartered Accountants have setup a team of professionals specifically to help business owners understand the regulations and make sure that you are compliant with Economic Substance Regulation in UAE using following approach:

Stage I :Identify whether your business is within the scope of the regulations. Accordingly, provide support and guidance on filing notification with the Regulatory Authority within specified deadlines.

Stage II: If within the scope of the Regulations, check whether your business pass the Economic Substance Test. We will Identify the non-compliant elements if criteria of Regulations are not met and provide suggestions to correct the weaknesses in order to pass the Economic Substance Test.

Stage III: Filing of returns and reports to the Relevant Regulatory Authority before the Due date.

We always strive to provide our clients with peace of mind for doing business while we take care of your compliances.

For Assessment on Economic Substance Regulations in UAE

Contact Person: Mr. Umendra Chaturvedi
Mobile:+971 55 52 04 830
Contact Person: Mr. Samir Popat
Mobile: +971 55 98 31 923
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