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.
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:
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.
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.
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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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.