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WHAT IS ECONOMIC SUBSTANCE?

The term economic substance (also tax substance in foreign countries) means that the company is actually active and have effective role in that jurisdiction.

ECONOMIC SUBSTANCE REGULATIONS (ESR) IN UAE

As part of the UAE’s commitment as a member of the OECD Inclusive Framework, and in response to an assessment of the UAE’s tax framework by the European Union Code of Conduct Group on Business Taxation, the UAE issued Economic Substance Regulations (Cabinet of Ministers Resolution No. 31 of 2019), (the “Regulations”) on 30 April 2019.

 

WHY ESR?

It is to ensure that companies having relevant activities, have actual activity in UAE and not just an entity just to benefit from the favorable conditions of the applicable double taxation treaties.

Benefits of ESR

ESR counters harmful tax practices, not only of multinational companies, but also of small and medium sized firms that are internationally operational.

Having to comply with ESR ensures that the profits the company presents are comparable with their economic activities and substantial economic presence in that jurisdiction.

 

Relevant Activities

Companies listed below are required to maintain and demonstrate an adequate “economic presence” in the UAE relative to the activities they undertake (“Economic Substance Test”).  

  • 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​

 

ESR Test

Companies need to test the origin, structure and economic effects of the transaction.We will help you to identify your economic substance and will help you with complying with ESR filing in UAE.

How to file ESR notification?

You need to have a registered MoF Corporate account, or create a new account to access the Economic Substance Filing Portal.