The UAE government has introduced new compliance called Economic Substance Regulation (ESR) requirements by passing, ‘Cabinet of Ministers Resolution No.31 of 2019, “the Regulations” ’, dated April 30 2019, related to Economic Substance. The Regulation is applicable from the financial year starting on or after 1 January 2019.
The UAE introduced Economic Substance Regulations to honor the UAE’s commitment as a member of the OECD Inclusive Framework on BEPS and in response to a review of the UAE tax framework by the EU which resulted in the UAE being included on the EU list of non-cooperative jurisdictions for tax purposes (EU Blacklist).
The Regulations apply to UAE onshore and free zone companies, branches, partnerships, and other UAE business forms (referred to as Licensees) that carry out any of the following Relevant Activities:
Yes, if the ‘offshore’ company undertakes a Relevant Activity
It applies to the following which carries out Relevant Activity:
For each financial period in which a Licensee earns income from a Relevant Activity, it will need to meet an Economic Substance Test in relation to that activity. The Economic Substance Test requires a Licensee to demonstrate that:
Annual Notification Filing - (Need to be filed by all entities even if they don't do any relevant activity)
Economic Substance Return within 12 months from the end of the relevant financial period - Only for the entity who does the relevant activity. As of now, only the notification form has issued for filing.
Licensees that are directly or indirectly at least 51% owned by the Federal or an Emirate Government, or a UAE Government body or authority, are exempt from the Regulations.
The Notification is a method for Regulatory Authorities to collect certain initial information in respect of Licensees and their activities in the UAE for the relevant Reportable Period. The information provided as part of the Notification is a prerequisite to filing an Economic Substance return for the same period (if required).
30 June 2020 for businesses with a financial year commencing on or after 1 January 2019 and ending on or before 31 December 2019 for the companies formed under the Ministry of Economy.
| Failure to | Penalty |
|---|---|
| Notify | AED 10k to 50k |
| Deemed failure to demonstrate economic substance-First time | AED 10k to 50k |
| Information exchange with the foreign competent authority of (1) parent company, (2) ultimate parent company, and (3) ultimate beneficial owner.-Second consecutive instance of failure | AED 100k to 300k, Trade / commercial license could be suspended, withdrawn or not renewed. |
| Authority | Link to file Notification | Due Date for Notification | Applicable for | References |
|---|---|---|---|---|
| Ras Al Khaimah Economic Zone(RAK EZ) | http://rak.force.com/RakezESR | 30-Jun-20 | All entities/ licensees, including those who do not undertake relevant activity | https://rakez.com/en/Media-Centre/ https://rakez.com/Upload/ https://rakez.com/Upload/ManageDocument/ |
| Dubai International Financial Centre(DIFC) | Via DIFC Client Portal https://portal.difc.ae/clientportal/s/login/ | 30-Jun-20 | All entities/ licensees, including those who do not undertake relevant activity | https://www.difc.ae/business/ https://www.youtube.com/ |
| Abu Dhabi Global Market(ADGM) | Form to be Mailed to economicsubstance@adgm.com Form: https://www.adgm.com/documents/ | 30-Jun-20 | Only entities/ licensees that are carrying out relevant activity. Also, the expemt category licensees shall also file the notification | https://www.adgm.com/operating-in https://www.adgm.com/documents/ |
| Dubai Airport Free Zone(DAFZ) | Via DAFZ Client Portal https://dafzprod.custhelp.com/app/ | 15-Jun-20 | All entities/ licensees, including those who do not undertake relevant activity | References from PWC https://www.pwc.com/m1/en/services/ |
| Dubai Multi Commodities Centre(DMCC) | Via DMCC Portal | 30-Jun-20 | All entities/ licensees, including those who do not undertake relevant activity | https://www.dmcc.ae/application/ |
| RAK International Corporate Centre(RAK ICC) | Via RAKICC Portal | 30-Jun-20 | All entities/ licensees, including those who do not undertake relevant activity | |
| Securities and Commodities Authority (SCA) | References from PWC https://www.pwc.com/m1/en/services/ | |||
| AJMAN FZ | "All Licensees have received an email from the Freezone with the steps to be taken/method of filing Email to info@afz.ae" | 30-Jun-20 | All entities/ licensees, including those who do not undertake relevant activity | References from PWC https://www.pwc.com/m1/en/services/ Other referece: http://www.m-hq.com/uae-esr-update- |
| Ras Al Khaimah Economic Zone - RAKEZ | http://rak.force.com/RakezESR | 30-Jun-20 | https://rakez.com/en/Media-Centre/ https://rakez.com/Upload/ManageDocument/ | |
| Jebel Ali Free Zone(JAFZA) | "through the email Jafza.Lease-License@Jafza.ae Form: http://dtcms.cachefly.net/docs/ | 30-Jun-20 | All entities/ licensees, including those who do not undertake relevant activity | http://www.dubaitrade.ae/ http://dtcms.cachefly.net/docs/ |
| National Industries Park | through the email Jafza.Lease-License@Jafza.ae Form: http://dtcms.cachefly.net/docs/ | 30-Jun-20 | All entities/ licensees, including those who do not undertake relevant activity | http://www.dubaitrade.ae/service http://dtcms.cachefly.net/docs/ |
| Dubai Auto Zone(DAZ) | "through the email Jafza.Lease-License@Jafza.ae Form: http://dtcms.cachefly.net/docs/ | 30-Jun-20 | All entities/ licensees, including those who do not undertake relevant activity | http://www.dubaitrade.ae/service http://dtcms.cachefly.net/docs/ |
| Umm Al Quwain Free Trade Zone Authority | Via UAQFTZA portal | 30-Jun-20 | ||
| Ajman Department of Economic Development | https://docs.google.com/forms/ | 30-Jun-20 | https://www.mof.gov.ae/en/ | |
| Dubai Department of Economic Development | https://docs.google.com/forms/ | 30-Jun-20 | https://www.mof.gov.ae/en/strategicpa | |
| Umm Al Quwain Department of Economic Development | https://docs.google.com/forms/d/ | 30-Jun-20 | https://www.mof.gov.ae/en/ | |
| Abu Dhabi Department of Economic Development | https://docs.google.com/forms/ | 30-Jun-20 | https://www.mof.gov.ae/en/ | |
| Sharjah Economic Development Department | https://docs.google.com/forms/d/ | 30-Jun-20 | https://www.mof.gov.ae/en/ | |
| Fujairah Municipality | https://docs.google.com/forms/ | 30-Jun-20 | https://www.mof.gov.ae/en/ | |
| Dubai Development Authority(DDA) | 25-Jun-20 |
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