As per the recent Economic Substance Regulation, UAE onshore and free zone companies and other UAE business forms (referred to as “Licensees”) are required to notify to the Relevant Authorities as to whether they are conducting the relevant activity or not as per the regulation and required to file the necessary details as mentioned in the Notification form..
The deadline for filing of the Notification form for companies registered at below mentioned authorities are as follows:
- Dubai Airport Free Zone Authority (DAFZA) – 3 May 2020 which has been extended by DAFZA to 31 May 2020
- Dubai South Free Zone (DWC/DACC) – 7 June 2020
- Dubai International Financial Centre (DIFC) – 12 June 2020
- Ras Al Khaimah International Corporate Centre (RAKICC) – 30 June 2020
- Dubai Multi Commodities Authority (DMCC) – 30 June 2020
- Hamriyah Free Zone Authority – 30 June 2020
- Sharjah Airport Free Zone (SAIF Zone) – 30 June 2020
- Abu Dhabi Global Market (ADGM) – 30 June 2020
Penalties for failing to notify the Regulatory Authority within the given deadline is between AED10,000 and AED50,000. Other penalties shall also apply in case Licensees fail to provide accurate or complete information and demonstrate sufficient economic substance in the UAE.
Economic Substance FAQs
Q1- What are the Economic Substance Regulations (“ESR”) and why did the UAE government enact them?
ESR have been introduced in countries with low or no corporate taxes, in order to comply with international initiatives to combat harmful tax practices including unlawful avoidance or evasion. ESR requires certain legal entities to demonstrate that they carry out substantial economic activities in these jurisdictions, in accordance with the Economic Substance Test (see Q6 below).
The UAE introduced the Economic Substance Regulations, applicable in free zones as well as on-shore, to honour its commitment as a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”), and in response to a review of the UAE tax reporting framework by the European Union (EU). The purpose of the Regulations is to ensure that UAE entities undertaking certain activities report actual profits that are commensurate with the economic activity undertaken within the UAE.
Q2- When did the ESR come into force?
The UAE Economic Substance Regulations came into force on 30 April 2019, and subsequent guidance on the regulations was issued on 11 September 2019. Regulatory Authorities responsible for administering the ESR were identified in a Ministerial Resolution issued on 4 September 2019. Amendments were made to the ESR in Cabinet Decree No. 7 of 2020, which was issued on 19 January 2020. The Ministry of Finance is working with the OECD to further refine the scope and applicability of the UAE Economic Substance Regulations. Updates will be posted on this website and on the Ministry’s website.
Q3- Who does the Economic Substance Regulations apply to?
The Regulations primarily apply to legal entities that carry out a ‘Relevant Activity’.
Q4- What are the Relevant Activities?
The Relevant Activities under the Economic Substance Regulations are:
- Banking Businesses
- Insurance Businesses
- Investment Fund Management Businesses
- Lease-Finance Businesses
- Headquarters Businesses
- Shipping Businesses
- Holding Company Businesses
- Intellectual Property Businesses
- Distribution and Service Centre Businesses
Please refer to the UAE Economic Substance Relevant Activities Guide issued by the Ministry of Finance for further information and explanation on each of the above Relevant Activities.
How NHBC Dubai can help
Together with our partner firm A&A Associates we are able to offer you a unique rate of AED 3,000 only for which we will assess whether your company’s business activities are relevant activities under the Economic Substance Regulation and we will assist in the preparation, reviewing, and filing of the ESR Notification Form with the Relevant Authority.
Contact us to know more about the UAE Economic Substance Regulation and assistance with the filing of the notification.