- Welcome to SKM Internationals
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102, AI Tawhidi Building, Bur
Dubai - United Arab Emirates
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sushil@skminternational.com
+971 50 5851327
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Sun - Thur 9 AM - 6.30 PM
Sat 9.30AM - 3PM
ESR Consultancy
UAE Economic substance regulation (ESR)
As part of the UAE’s commitment as a member of the OECD Inclusive Framework and in response to an assessment of the UAE’s tax framework by the European Union (”EU”) Code of Conduct Group of Business Taxation, the UAE introduced a Resolution on the Economic Substance (Cabinet of Ministers Resolution No.31 of 2019, the “Regulations”) on 30 April 2019.
The Regulations require all Authorities entities that carry out any of the ’Relevant Activities’ to maintain an adequate ‘Economic Presence’ in the UAE relative to the activities they undertake and applies to financial years commencing on or from 1"‘ January 2019.
The Regulations require UAE onshore and free zone companies and certain other business forms that carry out certain activities (Licensees – See Question 5) to maintain and demonstrate an adequate “economic presence" in the UAE relative to the activities they undertake.
Purpose of ESR In UAE
The purpose of the Regulations is to ensure that UAE entities report actual profits that are commensurate with the economic activity undertaken within the UAE.
The following business activities (“Relevant Activities”) are covered by the ESR:
Relevant Activities:
✓ 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
The Regulations apply to financial years commencing on or from 1 January 2019. Entities that are within the scope of the Regulations are required 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 is not required 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 will need to be submitted regardless. Failure to comply with the Regulations can result in penalties, spontaneous exchange of information with the Foreign Competent Authority (as defined in Article 1 of the Regulations), as well as other administrative sanctions such as the suspension, revocation or non-renewal of the entity’s trade license or permit.
Who is the “National Assessing Authority” for UAE ?
The assessment and determination on whether a Licensee has economic substance in the UAE is made by the Federal Tax Authority, in its capacity as the “National Assessing Authority" under the Regulations.
Please visit following link for Ministry of finance for more information
Ministry of finance
