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economic substance regulations compliance in uae

Economic Substance Regulations Compliance in UAE

Economic Substance Regulations (ESR) which was implement by the Ministry of Finance under the UAE government in the Cabinet Ministry Resolution of 2019. Now it is decided to arrange the entire region with global standards in the prevention of Base Erosion and Profit/Income Shifting (BEPS).

ESR will apply to nine relevant business activities as per the UAE legislation. And they are:

  • Insurance
  • Banking
  • Investment Fund Management
  • Lease – Finance
  • Holding Company
  • Shipping
  • Headquarters Business
  • Service and Distribution Center
  • Intellectual Property

Notifications

But all businesses that are license in UAE including partnership companies, free zone companies, and branch companies. All need to submit to the Regulating Authorities notifications regarding the matters below:

  • Date and end of the company’s financial year
  • Whether or not a part or all of the business’s gross income related to any Relevant Activity has been subjected to taxation in any jurisdiction outside the UAE
  • Whether or not the business carries any Relevant Activity

This should be submitted before the deadline, which is on the 30th of June 2020.

And for the businesses in UAE which not listed in the Ministers Resolution (No 31) of 2019 relate to ESR. They just have to notify Regulating Authorities that they are not involved in this.

Reporting

Apart from this notification requirement, a business that gets income from the above relevant activities every year in UAE has to show that they have a sufficient level of economic substance that allows it in carrying out a Relevant Activity.

All the licenses which are qualified have to prepare a report and submit it to the Regulating Authorities with the following information listed below:

  • Type of the Relevant Activity that the business conducts
  • Type and amount of relevant income with respect to every Relevant Activity
  • Place or location of the business
  • Type and amount of operating expense with respect to every Relevant Activity
  • Number of employees working full time
  • Details regarding the Core Income/Profit Generating Activities (CIGAs) conducted by the business
  • Detailed information regarding the activities that outsource by the business
  • Declaration of whether or not a business licensed in UAE satisfies the UAE Economic Substance Test

Economic Substance Test

Conditions for the business to meet in the Economic Substance Test UAE to get apply for the Economic Substance Regulations are:

  • If the UAE licensee conducts a Core Income/Profit Generating Activity (CIGA) in UAE
  • The business manages and directs in the country.
  • If there’s a sufficient number of full-time employees
  • There’s sufficient operating expenditure that incurs by the business or adequate expenditure on the outsourcing of a CIGA to a third party service provider in the UAE
  • If there’s sufficient physical assets or sufficient level of expenses for the outsourcing to a third-party service provider in the UAE

Ministry of Finance, Security & Commodities Authority, UAE Central Bank, and other authorities in Free Zones in UAE is included in the Regulatory Authority for the collection of reports and notifications from licensees and also in the economic substance test meetings and all.

For more information contact us at +971 55 6070 118 and clear all your doubts regarding ESR.

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