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Untd A Emirates

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UAE Updates Guidance on Economic Substance Regulations

The United Arab Emirates Ministry of Finance has updated its guidance on Economic Substance Regulations (ESR), including a new section on L. of its FAQ providing additional information. Some of the main questions and answers provided in the new section include the following:

Why should a business comply with the Economic Substance requirements?

If you are within the scope of the Economic Substance Regulations (see Section B), you must submit a Notification and Economic Substance Report, and meet the Economic Substance Test. Failure to do so will result in penalties (see Question 48).

The business activities that I undertake do not meet the requirements of any of the Relevant Activities listed, am I subject to the Economic Substance Regulations?

No, only businesses that undertake a Relevant Activity are subject to the Economic Substance Regulations and are required to file a Notification and Economic Substance Report.

My business was just set up, if I undertake a Relevant Activity (or plan to) by when should I file?

  • Notifications must be filed within six months from the end of the relevant financial period; and
  • Economic Substance Reports must be filed within 12 months from the end of the relevant financial period.

Will the Regulatory Authorities tell businesses if they are subject to the Regulations?

No, businesses are responsible to self-assess whether they undertake a Relevant Activity and have a filing requirement under the Economic Substance Regulations and cannot rely on Regulatory Authorities to inform them of their requirements under the Economic Substance regulations.

Should I file a Notification even if I did not earn any income during this financial period?

Yes, Businesses that carry out a Relevant Activity during a financial period are required to submit a Notification irrespective of whether they earned income from that Relevant Activity.

If my business carries out multiple Relevant Activities should I submit individual Notifications and Economic Substance Reports for each Relevant Activity?

No, businesses that have more than one Relevant Activity during a financial period should submit a single Notification and Economic Substance Report and report all their Relevant Activities in that single Notification and Economic Substance Report.

If my business is subject to Country-by-Country Reporting, will I also be required to comply with the Economic Substance Regulations?

If your business carries out a Relevant Activity you are also required to comply with the Economic Substance Regulations.

Are there cases where a business is only required to submit a Notification and not file an Economic Substance Report?

Yes, if the Licensee is an Exempted Licensee or does not earn income from its Relevant Activity. In these cases, there is no requirement to file an Economic Substance Report. The Economic Substance Filing Portal will automatically assess whether you need to file an Economic Substance Report based on your Notification, and only create a Report if you are required to submit one.

Are branches subject to the Economic Substance Regulations?

Yes, but there is no separate filing requirement for UAE branches. The "parent" or "head office" of the branch will need to file a Notification and Economic Substance return to report the relevant information of its branch or branches that undertake a relevant activity in the UAE.

Is a company that is registered as an offshore free zone company considered tax resident outside of the UAE for ESR purposes?

No, offshore free zone companies are subject to the Economic Substance Regulations in the same way as regular free zone companies or as a company established in mainland UAE.

Do I need to file a Notification every year?

Yes, if you continue to undertake a Relevant Activity.

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