ESR Consultants in Dubai Guide to Getting Economic Substance

January 18, 2023 Joshua Ramirez

The Economic Substance or ESR Consultants in Dubai Free Zone and onshore businesses as well as different business types to keep and prove that they have an “economic presence” in the UAE concerning the activities they engage in Economic Substance Test.

Entities falling included in the Regulations must complete and submit an annual Notification form with the appropriate Regulatory Authority and submit an ESR Consultants in Dubai to the Regulatory Authority within 12 months of the date of the financial year.

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What happened when ESR Consultants in Dubai came?

In the wake of the introduction of Economic Substance Regulations in the UAE and the specific guidance. So regarding these laws release from the UAE Ministry of Finance. Because the EU will soon take the UAE from its list of tax jurisdictions that are not cooperative.

In the year 2019, The European Union (EU) Code of Conduct Group which is in charge of business taxation. And assessing tax-related measures for all members, analyzed taxes of countries. So that do not have a tax or a nominal tax. In the end, the EU released the list of tax-free jurisdictions, which included the UAE.

The UAE was a member of the Organization for Economic Co-operation and Development (OECD), Base Erosion and Profit Shifting (BEPS) Inclusive Framework in May of 2018, where the UAE was determined to implement the minimum standards of the BEPS Inclusion Framework. In response, the UAE released its Economic Substance (ES) Regulations by the Cabinet Decision No. 31/2019, published on April 30, 2019.

The activities that fall under the regulation of Economic Substance Regulation

The Economic Substance Regulations primarily apply to any entity (Mainland or Free Zones) within the UAE that engages in “Relevant Activities.” The relevant activities include:

banking,
insurance,
investment fund management,
lease-finance,
headquarters,

Who is a relevant entity?

To satisfy the ES requirements for Relevant Activities, The entity has to meet the following criteria:

Conduct Core Income-Generating Activities (CIGA) in the UAE
be managed and directed to be collected and handled in the UAE following its CIGA
are a sufficient number of full-time, qualified personnel in UAE
have enough operating expenses in the UAE
have enough physical resources in the UAE

A company can outsource its CIGA in the UAE as the entity has complete control and adequate oversight over these operations. The outsource ones are perform within the UAE.

What are the reporting requirements for a relevant entity?

Entities that fall within these new Regulations must submit an annual report to the Regulatory Authority (License issuing Authority) within 12 months following the close of the financial year. It is the Regulatory Authority will then submit the report to the relevant Authority, which is the UAE Ministry of Finance.

The Who’s who is the Regulatory Authority?

They are accountable for ensuring compliance with notification and reporting requirements in the Regulations, identifying potential Licensees, validating the information they submit to determine if an entity can be exempt from tax, and sharing the information submitted with the Dubai Federal Tax Authority the Dubai Ministry of Finance.

What are the ESR conformity requirements?

Licensees must make a formal notification, using the format. And in the manner stipulate by the Regulatory Authority, before the deadline. So which is six months after the close of the fiscal year. It is the Regulatory Authorities have specified the deadlines for their jurisdictions. Licensees are also require to file the Annual Report 12 months after the close of the fiscal year.

Every entity operating within the UAE should evaluate its activities about the new ES Regulations. And regularly ensure compliance with the Regulations and reporting obligations.