Economic Substance Regulations

Economic Substance Regulations (ESR) in the UAE

The Economic Substance Regulations (ESR) in the UAE, introduced via Cabinet Decision No.31 on April 30, 2019, mandate onshore, free zone companies, and other UAE business entities engaged in specific activities to maintain a tangible economic presence aligned with their operations in the UAE.

Key Considerations:

Applicability: These regulations affect all companies licensed by any UAE economic department, including free zone and offshore entities. Exceptions apply to entities with 51% or more direct or indirect government ownership.
Relevant Activities: Companies engaging in specific activities like Banking, Insurance, Investment Fund Management, and others listed by the government must notify the licensing authorities and assess their relevance to these activities.
Compliance: Entities conducting relevant activities must self-assess their engagement based on "substance over form" criteria. They need to submit notifications and annual substance returns within specified deadlines to validate economic substance.
Notification Deadlines: Different authorities have prescribed deadlines for notification submissions, irrespective of whether the entity falls under the regulations or not.

Who Does it Apply To?

ESR applies to entities that generate revenue from one or more relevant activities, commencing financial years after January 1, 2019. Eligible entities include private and public companies, partnerships, foundations, and branches operating in the UAE's free zones, including offshore and financial free zones.

Brooks Management Consultancies LLC's Support:

We offer comprehensive services to ensure ESR compliance:

• Technical assessments for ESR applicability to your business.
• Timely filing of notifications to relevant authorities.
• Expert guidance on meeting Economic Substance Tests.
• Submission of annual ESR returns.

Understanding the Regulations Further:

The UAE's Ministry of Finance (MoF) issued the Regulations in response to the OECD Framework and EU Code of Conduct Group assessment. Entities failing to meet Economic Substance Tests could face financial penalties ranging from AED 10,000 to AED 400,000.

At Brooks Management Consultancies LLC, our seasoned team across Tax, Finance, Law, and Economics domains evaluates the applicability of Economic Substance rules to your business and ensures compliance to mitigate risks effectively.

For personalized assistance regarding ESR compliance, reach out to our experts at info@brooksme.com