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Economic Substance Regulation
Who must comply with ESR Regulations?
All UAE onshore and free zone enterprises (including those in the financial free zones) that engage in and make money from one of the “Relevant Activities” specified below are subject to the Regulations:
- Financial services, include
- banking,
- distribution and service centers,
- fund management,
- corporate headquarters,
- holding companies,
- insurance, and shipping.
What effect does this have on Relevant Entities?
To pass the economic substance test, the relevant entities must meet the requirements listed below:
- Specific guidelines on how a corporation must be run and managed in the UAE are contained in the regulations.
- Engage in primary revenue-generating activities in the UAE.
- Have a sufficient quantity of capable full-time workers in the UAE
- Engage in sufficient operating expenses in the UAE
- possess sufficient material assets in the UAE
Holding businesses that receive all of their revenue and profits from equity investments are subject to specific requirements. If an organization engages in “high risk IP related activity,” additional restrictions apply.
Sanctions for breaking the rules.
Significant financial penalties apply for failing the economic substance test, failing to give information, or supplying false information. The result is deregistration. Additionally, the Regulation stipulates that the tax authorities in the jurisdictions where the parent corporations and UBOs of non-compliant UAE-registered firms are based may receive information about those companies from the UAE authorities.
How may we assist you?
To fulfil their annual compliance, RNG can assist the licensed firms in submitting the following to the regulatory authority:
Notification: beginning on January 1st, 2020, provide the Regulatory Authority with the necessary information.
Report: Must be presented within a year of the end of each financial year and contain all necessary information.