Economic Substance Regulations (ESR)
Economic Substance Regulations are a yearly obligation for all UAE licensed Entities. ESR was introduced to enhance Accountability and combat tax evasion and other harmful financial practices by geographically mobile businesses licensed in UAE. After the European Union Code of Conduct Group assessment, ESR was introduced to improve UAE’s tax framework. The Regulations issued in 2019 were amended in 2020 with the following modifications:
- New Cabinet Resolution No 57 of 2020 revoking Cabinet Resolution No 31 of 2019 (the “Regulations”)
- Ministerial Decision 100 of 2020 ESR Guidance and Relevant Activities Guide Issued 19 August 2020
In order to maintain and prove their economic substance in the UAE, UAE-licensed entities performed relevant activities based on applicable ESR laws and regulations. Entities falling within the scope of ESR will have to submit an ESR Notification within six months of their financial year-end, whereas the report will be submitted within 12 months of the financial year-end. Failure to comply with these requirements is punishable by 20,000 and 50,000 AED fines.
Activities Relevant as per ESR Regulations include:
- 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
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