GUIDE: ECONOMIC SUBSTANCE REPORTING FOR ALL DUBAI & UAE COMPANIES

Current Law:

DATE: SEPTEMBER 16, 2024 – IMPORTANT UPDATE: KEY AMENDMENTS TO THE ECONOMIC SUBSTANCE REGULATIONS (ESR)

The UAE Cabinet Decision No. (98) of 2024, published on September 16, 2024, introduced several key amendments to the Economic Substance Regulations. Key highlights include:

• Extended ESR applicability for financial years from 2019 to 2022.
• Waiver of penalties for exempt businesses up to December 31, 2022.
• Relief on penalties after December 31, 2022, for entities meeting national compliance obligations.

These updates provide crucial relief, particularly with the UAE’s corporate tax regime now in place.

We offer an ESR Assessment to evaluate each entity’s eligibility and compliance status. Secure your free consultation today.

Overview of Historical Law (No Longer in Effect): 

ECONOMIC SUBSTANCE REPORTING: IS YOUR DEADLINE FAST APPROACHING? – (No Longer in Effect)

Further to the introduction of the Economic Substance Regulations (ESR) in the United Arab Emirates (UAE), there are several deadlines approaching. ESR applies to all companies and entities based in the UAE, which includes mainland and free zones as well as local branches and branches of a foreign company. It is a mandatory requirement for all entities to submit the Economic Substance Notification irrespective of whether they conduct a “Relevant Activity” or not.  

The UAE government has appointed the responsibility to regulate and administer the ESR to mainland and free zone licensing authorities known as the (Regulators). All Regulators are to set to issue the protocols and guidelines for each licensee entity to comply with ESR in Dubai, Abu Dhabi and the UAE. Should a licensee entity or company carry out a “Relevant Activity” it is required to notify and submit the mandatory report to the relevant Regulator. Most Regulators have been instructed by the Ministry of Finance to set the deadline and request its licensee entity to formally lodge the notification by 30 June 2020. 

Certain Regulators have set out the procedure and deadline for lodging the notification much earlier than 30 June 2020 e.g. Dubai Airport Free Zone Authority’s deadline is 31 May 2020. Furthermore, not all licensing authorities has released the notification deadline and processes e.g. Jebel Ali Free Zone Authority (JAFZA) and International Free Zone Authority (IFZA) and other Regulators are yet to release the formal submission process and format.

There are several updates issued by the Regulators and below is an outline of the deadline, format, and process. (No Longer in Effect)

The Ministry of Finance has requested at a minimum that the following information be included for the notification:

• Type of Relevant Activity conducted by the licensee (if this applies).
• If income is earned from its activity and if this income has been subject to tax outside of the UAE.
• If the Licensee is a tax resident outside the UAE (if yes to state where).

If an entity does not complete and file, the notification before the deadline or if an entity files an incorrect notification, it will be subject to penalties varying anywhere from AED 10,000 all the way up to AED 50,000.

We have included the following important links issued by the Ministry of Finance regarding ESR:

• UAE Economic Substance Guide

During this time there are many changes occurring. Many Regulators are yet to announce their notification date and submission process. We remain in contact with the relevant authorities and will update you as and when the situation changes. We are committed to assisting you every step of the way. For further information on Economic Substance Reporting, or if you need assistance from our team to complete the notification filing, please feel free to contact your usual Creation Business Consultants team member or email [email protected] or call +971 4 878 6240.