ESR Consultants in Dubai
Economic Substance Regulation Services in Dubai
The economic substance framework applies to all companies licensed in the UAE to control tax evasion, whether they are natural or legal persons. This law is in force in nearly 11 countries worldwide. The Economic Substance Regulation was introduced into the UAE in April 2019, but was replaced by the Organization for Economic Co-operation and Development (OECD) through New Cabinet Resolution No. 57 of 2020. The OECD, whose main agenda is to control base erosion and profit-sharing practices or BEPS, is developing a 15-step action plan. At least five of these action plans are mandatory for each OECD member country and include harmful tax practices, also known as Economic Substance Rules (ESR).
ESR objectives for the UAE: The main objective of the Economic Substance Rules is to regulate the UAE’s tax liabilities through the relevant sectors. This is because many organizations, particularly multinational companies, save significant amounts of tax and take advantage of various low-tax jurisdictions. This revised legislation ensures that companies have a physical presence here and carry out all their business activities in the UAE, rather than just showing that they have income in the country through a license.
Membership of the revised ESR
There are a number of significant changes in the amended ESR, such as certain categories of businesses being required to comply with the ESR. the ESR focuses specifically on companies operating and generating income in continental, offshore, free zones and financial free zones. The key actors in the amended framework are listed below.
- Banking
- Insurance business
- Investment fund management business
- Rental and financing business
- Shipping
- Holding company business
- Intellectual property business
- Head office
- Distribution and service center business
- Businesses exempt from ESR
The revised regulations clearly define exempt license holders who do not meet the UAE ESR. However, they are still required to submit a declaration stating that they are exempt from the ESR, together with documentation. If a company is established in the UAE, carries out relevant activities and becomes an exempt licensee
Investment Funds
Tax jurisdiction outside the UAE, A wholly-owned resident entity is a resident of the UAE and is an authorized person in the UAE. It is also not part of an international group and conducts all its business exclusively in the UAE. A branch of a foreign entity, the income of which is taxable in the jurisdiction in which the foreign entity is incorporated. In addition, the amended rules do not provide a specific exemption for those entities that are at least 51% owned directly or indirectly by the UAE government.
Relevant bodies under the revised rules
These are the relevant bodies responsible for notifying, reviewing and submitting your ESR application.
- National assessment bodies
- Regulatory bodies
- Ministry of Finance
What does 'qualifying substance' mean?
An eligible substance has specific characteristics, which means that the relevant business activity must meet the notification, testing and reporting requirements of the ESR. This is a key step in determining eligible economic substances in the United Arab Emirates.
- Number of eligible employees
- Management and operation in the UAE
- Ratio of expenses to operations
- Physical presence in the UAE
- Corresponding physical assets in the UAE
- Core business generating income UAE
- Economic Substance Regulation Full Procedure
Applying for Economic Substance Regulation in the UAE is a somewhat complex and lengthy process. However, it can have a positive impact on the overall economy of the UAE and also help you to grow your business. It is an important process to comply with the Economic Substances Regulation in accordance with all relevant authorities.
ESR assurance and assessment
Firstly, we need to demonstrate that the company has the appropriate economic substance in the United Arab Emirates. We also had to demonstrate that the core income-generating activities (CIGA) were being carried out in the country. It is then necessary to assess what relevant activities are carried out and whether they require the introduction of ESR in order to conduct business in the UAE.
Submitting an ESR notification
If the issuing company carries out any of these related activities in the UAE, it is required to notify the relevant authorities. The requirements and procedures for notifying ESR vary from one licensing authority to another.
All companies are required to assess their ESR status and submit a notification to the relevant authority. The revised resolution requires all licensees and exempt licensees to submit a fresh ESR notification on the Treasury portal. Each relevant authority has a different notification procedure. Some require it to be sent via email, while others have online portals.
Economic Substance Testing
The economic substance test is conducted to validate the ESR information and documentation provided. It confirms for the licensee that you have the appropriate economic substance, which determines whether the company is exempt or non-exempt from the amended resolution in the United Arab Emirates.
Annual ESR Report
The final step is for a report to be submitted by only those companies that carry out these relevant activities. This should be submitted within 12 months of the end of the financial year to ensure that your ESR test is met by a respectful body.
Non-compliance with ESR can result.
In the United Arab Emirates, ESR is mandatory for all licensees belonging to a specific business category. if anyone fails to comply with the revised ESR submitted to the relevant authorities, they will be subject to a fine of between Dh50,000 and Dh300,000. License suspension as well as other administrative penalties such as suspension, revocation or non-renewal of a company’s marketing license or permit are also imposed.
How can Al-Hayat Consulting help you comply with ESR?
- Understanding of your company and its scope to obtain economic substance regulation services in Dubai. As we are offering ADNOC ICV Certification Services in Dubai and Abu Dhabi so the comprehensive assistance to help you meet your economic substance regulation obligations
- Comprehensive assistance to help you meet your economic substance regulation obligations
- Assistance in notifying the authorities of your economic substance regulations
- Assurance that all relevant licensees are effectively complying with the economic substance regulation test
- Accountants to help you prepare and submit your annual ESRs
- Commitment to protect your clients from penalties for non-compliance with ESRs
Stay updated on the latest developments in audit
Please provide us with your email to stay updated on the latest news and trends. Your personal information will be protected under our privacy statement.
