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The UAE Economic Substance Regulations (ESR) are in force. The ESR applies to all businesses in the UAE.

The regulations were issued in response to European Commission concerns which resulted in the UAE being added to the list of non-cooperative tax jurisdictions within the European Union. In addition, the regulations should assist in further aligning UAE's legislative framework with the standards outlined in the OECD Base Erosion and Profit Shifting (BEPS) action plan.

UAE entities will need to determine whether they meet the 'economic substance' requirements and determine how they will comply with the regulations, either by bolstering UAE economic substance or restructuring their operations. 

When do the economic substance regulations apply from?

It is important to note that the regulation is effective from the date of issuance of the resolution, which is 30 April 2019.

Activities that fall under Economic Substance Regulations in the UAE?

UAE entities engaging in "Relevant Activities," which may include any of the following businesses licensed in the UAE (mainland or free trade zones):

Companies owned by governments (states, federals, etc.) are currently excluded from the Regulations.

1.     Banking

2.     Insurance

3.     Investment fund management

4.     Lease Finance

5.     Headquarters

6.     Shipping

7.     Holding company

8.     Intellectual property

9.     Distribution and service centers

To demonstrate that your business meets the ESR requirements, your business may also need to file an economic substance return ("ES Return"), within 12 months of the end of your financial year.

What are the economic substance requirements?

Where an entity is undertaking Relevant Activities, the following requirements apply:

1.     Core Income Generating Activities (CIGA) are the activities that generate income for the entity in the UAE. The regulations define what constitutes CIGAs for each relevant activity.  

2.     In relation to CIGA, the entity must be directed and managed in the UAE.

3.     An entity's activities must be carried out with adequate local "economic substance" with regard to the level of relevant activity in the UAE. The economic substance consists of: – Full-time employees – Expenditures – Property.

4.     A certain amount of information will also need to be provided to a regulatory authority by entities within a year of the end of their financial year. An entity that is undertaking relevant activities must also provide a detailed report to the regulatory authority regarding the economic substance it maintains in the UAE, including a self-declaration that the requirements for economic substance are met. 

What is required under the Economic Substance Regulations?

In accordance with the Economic Substance Regulations, every Licensee who engages in one or more Relevant Activities must notify the appropriate regulatory authority.


Furthermore, any Licensee conducting one or more of the Relevant Activities and generating income from the Relevant Activities in the UAE will be required to complete an “economic substance test” and submit an economic substance report to the appropriate regulatory authority within 12 months of the end of the relevant financial period. 


In order to qualify for the exemption, the company must be at least 51% owned by the government of the UAE or an Emirate government.


According to the Relevant Activity and the location where it is undertaken, the regulatory authority will determine the form and mechanism for filing reports.


Penalties under the UAE Economic Substance Regulations?

1.     AED10, 000 - AED50, 000 penalty for failure to file a Notification

2.     If you fail to provide accurate or complete information, you will be fined AED10,000 - AED50,000

3.     Failure to demonstrate sufficient economic substance in the UAE for the relevant Financial Year.

Our experienced team will be happy to analyze your business activities, determine whether you are within the rules and guide you as to what actions are required to ensure full compliance.


Please get in touch with:

Mr. Faisal Salim


+971 52 2037461