We provide ESR UAE services to help companies remain compliant with the requirements of Economic Substance Regulations UAE. We start with a review of group structure and activities, determine ESR applicability, and evaluate compliance with ESR UAE. We then decide on corrective actions, establish ESR compliant policies, assist in filing notifications, and Economic Substance Regulations. We also provide training on Economic Substance regulations and policies.
In May 2018, UAE joined the OECD Inclusive Framework on BEPS as a part of its commitment as a member of OECD. As a part of UAE’s commitment to prevent harmful tax practices such as tax evasion, UAE announced the Resolution of the Cabinet of Ministers No. (31) for 2019 concerning Economic Substance Regulations (ESR/Regulations) on 30 April 2019. They were subsequently amended by Cabinet of ministers Resolution no. 57 of 2020 in August 2020. Ministerial decision No. 100 of 2020 provides guidance to entities carrying out one or more relevant activities.
These regulations are mandatory for UAE onshore companies, freezone companies and other business forms that carry out certain activities in UAE. They have to demonstrate adequate economic presence in UAE relative to the activity that they undertake.
Licensee is any business that constitutes a juridical person or an unincorporated partnership that is registered in UAE and /or undertakes a relavant activities for financial year commencing on or after 01/01/2019.
It includes:
LLC
Private/Public Shareholding company
Partnerships
Any other entity with a legal personality - separate from its owner.
It does not include:
Natural persons
Sole proprietorship
Trusts and Foundations (assuming they are not carrying out relevant activities)
Exempted Entities
Following entities are exempted from demonstrating substance
Non-UAE tax resident entities
Investment funds and their underlying SPVs / Investment holding entities
Entities that are wholly owned by UAE resident that undertake only domestic transactions.
UAE branches of foreign companies that are subject to tax on all of their relevant income in a foreign jurisdiction
Exempted entities need to submit a notification and provide sufficient evidence to support their claim of exempt status. Failure to do it will mandate licensees to submit Economic substance report and meet economic substance test. So it is necessary to have sufficient evidence to back up the claim of exemption to protect entity from risk of noncompliance and heavy penalties.