The Economic Substance Regulations (ESR), supplemented by guidelines released on September 11, 2019, were issued by the United Arab Emirates Cabinet of Ministers.
However, the Economic Substance Regulations to applies to all entities engaged in a related operation in the UAE.
Including entities formed in free zones and financial free zones.
Also, In 2019, in response to being blacklisted by the EU for tax purposes, the UAE Government adopted After last month’s record-breaking diamond tender, DMCC will host six more.
An assessment of the UAE tax system by the EU Code of Conduct Committee on Business Taxation.
The EU removed the UAE from the blacklist in late 2019.
Some of the key objectives of the previous ESR is to ensure that UAE organizations are able to demonstrate an adequate economic presence.
In relation to their activities and to disclose actual income in line with the economic activities carried out within the UAE.
As part of the UAE’s commitment as a member of the OECD Inclusive Process, the UAE released ESR.
Although, it was released on 30 April 2019 in response to an evaluation of the UAE’s tax framework by the European Union Code of Conduct Committee on Business Taxation.
Guidance on the implementation of the Regulations was released on 11 September 2019 (Ministerial Decision No. 215 of 2019).
Meanwhile, the Regulatory Authorities charged with implementing and executing the Regulations are specified in Cabinet Decision No. 58/2019 on the determination of regulatory competencies.
Scope of the Regulations
Regulations were made by Resolution No. (57) of the Cabinet of Ministers of 2020 of 10 August 2020.
Although, the revised Guidelines were released on 19 August 2020. (Ministerial Decision No. (100) of 2020.
The Regulations require onshore and free zone UAE companies and certain other business forms that carry out any of the ‘Relevant Activities’ specified below to maintain and demonstrate an adequate “Economic presence” in the UAE in relation to the activities they perform.
Relevant Activities are:
- 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
Any business or organization which carries out one or more of the related activities referred to above shall maintain and demonstrate an adequate “economic presence” in the UAE in relation to the activities undertaken by it (the Economic Substance Test).
For financial years commencing on or from 1 January 2019, the Regulations apply.
Entities within the scope of the Regulations are expected to send to their Regulatory Authority an annual Notification Form.
More-also, to submit an Economic Substances Report to the same Regulatory Authority within 12 months of the end of their financial year, (e.g. 31 December 2020 for entities with a financial year ending 31 December 2019).
Read more on Crenov8;
CRENOV8
