Economic Substance Reporting (ESR) – United Arab Emirates

Economic Substance Reporting (ESR) – United Arab Emirates

As part of the UAE’s commitment as a member of the OECD Inclusive Framework, UAE Government issued Cabinet of Ministers Resolution No. (57) of 2020 on 10 August 2020 and updated Guidance was issued on 19 August 2020 (Ministerial Decision No. (100) of 2020. The Regulations require UAE onshore and free zone companies and certain other business forms that carry out any of the defined “Relevant Activities” listed below to maintain and demonstrate an adequate “economic presence” in the UAE relative to the activities they undertake (“Economic Substance Test”).

The Regulations apply to financial years commencing on or from 1 January 2019. Entities that are within the scope of the Regulations are required to submit an annual Notification form to their Regulatory Authority, complete and submit to the same Regulatory Authority an Economic Substance Report within 12 months from the end of their financial year (e.g. 31 December 2020 for entities with a financial year ending 31 December 2019).

An entity is not required to meet the Economic Substance Test and file an Economic Substance Report for any financial period in which it has not earned income from a Relevant Activity or if it meets the conditions for being exempt. A Notification form will need to be submitted regardless. Failure to comply with the Regulations can result in penalties, spontaneous exchange of information with the Foreign Competent Authority (as defined in Article 1 of the Regulations), as well as other administrative sanctions such as the suspension, revocation or non-renewal of the entity’s trade license or permit.

UAE businesses are expected to use a ‘substance over form’ approach to determine whether or not they undertake a Relevant Activity and, as a result, are within the scope of the ESR Regulations. This determination would require the UAE business to look beyond what is stated on their commercial licence to the activities actually undertaken during a financial period.

A Notification must be filed if you are a corporate entity (Limited Liability Company, Public Joint Stock Company, Private Joint Stock Company, etc.) or a partnership (Limited Liability Partnership, General Partnership etc.) that undertakes any of the following Relevant Activities in the UAE during the relevant accounting period:

  • 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​

Please contact us for further information and submission of notification or report.