The Economic Substance Regulations (ESR) in the UAE are a set of regulations introduced to ensure that companies have a substantial economic presence in the country by conducting real economic activities and maintaining adequate levels of staffing, expenditure, and physical presence. These regulations were introduced to align with international standards and to prevent profit shifting to jurisdictions with low or no taxation.
Key Points about ESR in the UAE:
1. Purpose of ESR:
- The primary purpose of ESR is to prevent businesses from artificially shifting profits to low-tax jurisdictions without substantial activities, thereby taking advantage of tax laws.
2. Relevant Activities:
- ESR applies to entities engaged in specific relevant activities, including banking, insurance, investment fund management, leasing, shipping, and intellectual property, among others.
3. ESR Compliance Deadline:
- Entities must submit an annual notification within six months of the end of the financial year and a report within twelve months. The submission deadline for the ESR Annual Notification for the financial year ending 31st March is 30th September.
4. Compliance Obligations:
- ESR compliance includes submitting notifications, conducting economic substance tests, and filing annual reports on the Ministry of Finance’s online portal.
5. Economic Substance Tests:
- Entities must satisfy core income generating activity (CIGA) tests, directed and managed tests, and adequacy tests specific to the relevant activity.
6. Holding Companies and High-risk Intellectual Property:
- Holding companies are subject to reduced ES tests, while high-risk intellectual property businesses face enhanced ES tests.
7. Compliance Assistance:
- Al Marzaan Consultancy offers comprehensive ESR compliance services, including assessment, assistance in filing notifications and reports, documentation support, and assistance in responding to regulatory authorities’ inquiries.
8. Penalties for Non-Compliance:
- Non-compliance with ESR regulations may result in penalties, fines, and even the suspension of business activities in the UAE.
ESR regulations are crucial for ensuring that businesses have a genuine economic presence in the UAE and are aligned with international tax standards. Al Marzaan Consultancy offers expertise and assistance to ensure that businesses comply with these regulations and submit the necessary notifications and reports in a timely and accurate manner.
