ECONOMIC SUBSTANCE REGULATIONS COMPLIANCE UAE

Economic Substance Regulations Compliance Services UAE

The Economic Substance Regulations (ESR) in the UAE is a set of guidelines and requirements issued by the Ministry of Finance to ensure that companies conducting certain business activities in the UAE have an adequate level of economic substance and are not merely being used as a means of tax avoidance.

In April 2019, the UAE released economic substance regulations (the “Regulations”). These were later amended in August 2020 through Cabinet Resolution No.57. The Regulations require UAE entities to establish a sufficient “economic presence” in the UAE corresponding to their business activities. All UAE onshore and free zone companies, as well as some other business forms, are subject to the UAE economic substance requirements if they engage in one or more “Relevant Activities” starting from financial years that begin on or after January 1, 2019.

The regulations apply to companies engaged in specific activities such as banking, insurance, investment fund management, shipping, and intellectual property. Companies must demonstrate that they have sufficient employees, physical assets, and management presence in the UAE to carry out their business activities.

Entities that qualify for “exempt” status are not obligated to prove economic presence in the UAE. Nonetheless, they must submit a Notification and furnish adequate evidence to substantiate their exempt classification. Failure to comply with the ESR could result in penalties and other consequences. Are you struggling to understand the nuances of economic substance regulations in the UAE? Horizon Biz Consultancy can simplify the process for you and provide clear, actionable steps to
achieve compliance. You can book your free consultation with our experts today.

What are the Common Requirements for Companies to meet the Compliance Criteria Under Economic Substance Regulations UAE?

The Economic Substance Regulations (ESR) require UAE entities that carry out certain “Relevant Activities” to have adequate economic substance in the UAE. To comply with the ESR, a company must satisfy the following criteria:

  1. Conduct Core Income-Generating Activities (CIGAs) in the UAE: The Company must carry out the CIGAs that are specific to its Relevant Activity in the UAE. The CIGAs will vary depending on the type of Relevant Activity.

  2. Adequate employees and premises: The Company must have adequate employees, premises, and expenditures in the UAE that are commensurate with the level of CIGAs carried out in the country.

  3. Direct the relevant CIGAs: The Company must direct and manage the relevant CIGAs in the UAE.

  4. Document and report: The Company must maintain accurate records of its activities and submit an annual ESR notification and economic substance report to the regulatory authority.

  5. Demonstrable economic substance: The Company must be able to demonstrate that it has adequate economic substance in the UAE to support the Relevant Activity it carries out.

The criteria may vary depending on the type of Relevant Activity being conducted, and failure to meet the ESR requirements may result in penalties and fines.

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Our Services for Economic Substance Regulations Compliance

Looking to comply with the Economic Substance Regulations in the UAE? Horizon Biz Consultancy
can help! Our team of experts can provide you with the necessary guidance and assistance to ensure
that your business meets all the compliance requirements.

Services We Offer Include

  1. Assessing the applicability of the Regulations to the company’s activities and structure.

  2. Reviewing the company’s existing business activities, financials, and operations to identify
    gaps and areas of non-compliance.

  3. Providing recommendations and implementing changes to the company’s structure,
    operations, and financials to ensure compliance with the Regulations.

  4. Preparing and submitting the annual Economic Substance Notification to the relevant
    authority.

  5. Conducting ongoing monitoring and reporting of the company’s compliance with the
    Regulations.

  6. Providing general advisory services on tax planning, restructuring, and optimization to help
    companies minimize tax liabilities while remaining compliant with the Regulations.

We can assist you in assessing your company’s economic activities, preparing and filing the
necessary reports, and advising on the best practices to avoid any penalties or fines. Contact us
today to learn how we can help you ensure your company’s compliance with the UAE Economic
Substance Regulations.

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FAQs

ESR compliance is mandatory for all onshore & offshore companies, limited partnerships, and permanent establishments in UAE.

Entities must have adequate employees, expenditures, physical offices/assets in UAE and conduct core income generating activities locally.

Penalties include fines up to AED 50,000 and even suspension/non-renewal of license. Our experts guide appropriate compliance.

We offer specialized ESR compliance consulting – gap analysis, planning substance improvements, collating documentation, filings, liaising with authorities.

Entities must submit notification & detailed ESR reports annually to authorities along with financial statements and activity proofs.

Yes, we provide proactive guidance on proposed business activities, structure, resource planning etc. to ensure new entities meet ESR from inception.

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