Economic Substance Regulations in the UAE

Economic Substance was introduced vide UAE Ministry of Finance in the form of Cabinet of Ministers Resolution No. 31 of 2019, dated 30 April 2019 (UAE ESR) followed by the Ministerial Decision No. 215 on the issuance of directives for the implementation of ESR and Cabinet Resolution 58 of 2019 determining the Regulatory Authorities for the purposes of UAE ESR. As per UAE ESR, every entity in the UAE is required to evaluate whether:

  1. It is conducting any of the prescribed Relevant Activities under UAE ESR or not; and
  2. In case where it is conducting one or more of the prescribed Relevant Activities, then whether the entity satisfies the UAE ESR requirements/tests or not.
    Licensee conducting the prescribed Relevant Activities is required to notify and report specified information on its Relevant Activities on an annual basis to its Regulatory Authority (can be determined basis Cabinet Resolution 58 of 2019 mentioned above).

What are The Relevant Activities?

The following are considered as “Relevant Activities” under the Regulations:

  1. Banking
  2. Insurance
  3. Fund management
  4. Lease-finance
  5. Headquarters
  6. Shipping
  7. Holding company
  8. Intellectual property (IP)
  9. Distribution and service centre

What are the economic substance requirements in the UAE?

An entity must satisfy the following key criteria to meet the Economic Substance Test in relation to any Relevant Activity carried on by it:

  1. Conduct relevant “core income-generating activities” in the UAE;
  2. Be “directed and managed” in the UAE in relation to that activity; and
  3. With reference to the level of activities performed in the UAE:
  • Have an adequate number of qualified full-time employees in the UAE
  • Incur an adequate amount of operating expenditure in the UAE
  • Have adequate physical assets in the UAE

What are the UAE economic substance regulations reporting requirements?

A relevant entity will be required to report specified information on its Relevant Activities on an annual basis to the relevant regulatory authority (that has issued the trade license to such an Entity).

• Existing entities (formed on or before 30th April 2019) – Must comply with the Regulations from 30 April 2019 – first return due in 2020

• New entities (formed after 30th April 2019) – Must comply with the Regulations upon receiving its trade license – first return due in 2020 (or later)

How can PKF help?

PKF has a dedicated team of experts in Dubai who can assist clients with ESR.
• Impact assessment –
o Understanding the organisation’s structure and nature of business activities/transactions undertaken in the UAE in order to evaluate the applicability of the UAE ESR;
o Identifying whether the company’s business falls in the list of businesses/industries which the UAE ESR have prescribed;
• Gap and remediation analysis –
o Analysing the economic substance requirements based on relevant activity identified;
o Collating data with respect to the manner of conducting relevant activity, revenues booked, premises available, number of employees and so on;
o Identifying the gaps, in discussion with the management, basis study of facts and requirements;
o Highlighting corrective actions that may be taken (if any);
• Compliance / Reporting –
o Assistance in ensuring timely compliance with the notification filing requirements of the UAE ESR and collating details required therein;
o Assistance in ensuring timely compliance with the reporting requirements of the UAE ESR and collating required details in the prescribed reporting form and related declarations.

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