The Economic Substance Regulations in Dubai
What Are the ESR?
The ESR mandate that companies engaged in specific activities must maintain a substantial presence in the UAE. These regulations align with global standards set by the OECD and the EU, aiming to combat tax evasion and promote transparency.
Who Is Affected?
The ESR apply to UAE entities involved in:
These entities must pass an economic substance test to prove genuine business operations within Dubai.
Key Compliance Requirements
To comply with the ESR, entities must:
1.Conduct Core Income-Generating Activities (CIGAs): Entities must perform key business activities in Dubai.
2.Directed and Managed Requirement: Entities must be managed and directed from Dubai, including holding board meetings with directors present in Dubai.
3.Adequate Resources: Entities must have sufficient employees, premises, and expenditure in Dubai.
Compliance and Reporting
Entities must file an annual Economic Substance Report with the Ministry of Finance. Non-compliance can result in financial penalties, information exchange with foreign tax authorities, and license suspension.
Exemptions
Exemptions apply to entities fully owned by UAE residents or UAE branches of foreign companies subject to foreign taxes. However, they must still notify the Ministry of Finance.
Conclusion
Understanding and complying with the ESR is crucial for businesses in Dubai to avoid penalties and maintain their position in a globally respected business environment.
