Economic Substance Regulations in the UAE

Economic Substance Regulations is another compliance requirement for entities registered in the UAE. The United Arab Emirates (UAE) Ministry enacted the Cabinet Resolution no. 31/2019 with effect from 30th April 2019 on Economic Substance Regulations in the UAE. This was followed by the Ministerial Decision 215 for the year 2019 giving directives for the implementation of the provisions of Cabinet Decision no. 31/2019.

One of the four criteria in the framework of OECD, is the absence of a requirement that the activity be substantial. In addition, the European Union is working to have a Tax Governance at Global Level in order to curb the Tax avoidance, evasion. The Economic Substance Regulations is in consonance with the global standard set by Organization for Economic Co-operation and Development (OECD) on Harmful Tax Practices. UAE also joined the all-inclusive framework of OECD on Base Erosion and Profit Shifting (BEPS) and is committed to have the minimum standards in the State. UAE is “No or Only Nominal Tax Jurisdiction” (NOON’s) environment and is in line with other jurisdictions with same environment who are parties to this framework.

Applicability of Economic Substance Regulations in the UAE?

The rule is released on 30th April 2019 and is applicable to all Licensee carrying on the Relevant Activities in the UAE, including the Free Zone or Financial Free Zone; with effect from the year 2019.

What are the Relevant Activities under Economic Substance Regulations in the UAE?

  • Banking Business
  • Insurance Business
  • Investment Fund Management Business
  • Lease-Finance Business
  • Shipping Business
  • Headquarters Business
  • Intellectual Property Business
  • Holding Company Business
  • Distribution & Service Centre Business

Exempt Companies from Economic Substance Regulations in the UAE

Companies in which Government of the State or Government of any Emirate of the UAE or any governmental authority or body of any of them having at least 51%  direct or indirect ownership in Company’s shareholding.

How to meet the Economic Substance Regulation Test?

  • Check whether the entity is directed and managed in the State in relation to that activity.
  • Check whether the entity conducts/ performs Core Income-Generating Activity (CIGA) in the State.
  • Check whether the company employs the adequate number of qualified full-time employees or incurs an adequate level of operating expenditure and adequate physical assets in the state.
  • If CIGA is conducted by another entity for the relevant licensee, then check whether the Licensee has full control and is be able to monitor the activities of another entity.

Economic Substance Notification due dates are released by most of the Regulatory Authorities in the UAE. However, the due dates released by different authorities are not consistent. In the case of some authorities, the declared due dates are already passed. For eg: DAFZA (Dubai Airport Free Zone); the initial deadline was on 3rd May 2020 and was extended to 31st May 2020. For DIFC the initial declared due date was 12th June 2020 and is extended to 30th June 2020.

Since the Economic Substance Notification due dates declared by different authorities are not the same, it is important to summarize the available information in one place. The guidelines and or circulars issued by various Regulatory Authorities to their licensees on when to file the Economic Substance Notification (ESR Notification) and guidance on the same are summarized below.

Note: The list is only inclusive and as and when we get further information, we will update in the below chart:

 

Sr. No Authority Emirates Who is required to file? How to file?

 

When to file? Form released
1 Abu Dhabi Mainland (Ministry of Economy) Abu Dhabi Only licensees conducting relevant activity https://msurvey.government.ae/

survey/Ministry%20of%20Economy

/clf/en/direct?mailref=0

By 30 June 2020 Yes
2 Dubai Silicon Oasis (DSO) Dubai All licensees, (Even if relevant activity is not conducted) Email ESR notification form to lic_section@dso.ae By 31 May 2020 Yes
3 DAFZA Dubai All licensees, (Even if relevant activity is not conducted) DAFZA portal By 31 May 2020 (extended from 3 May 2020) Yes
4 Dubai Aviation City Corporation Dubai All licensees, (Even if relevant activity is not conducted) Email ESR Notification

form to economic.substance@dacc.ae

By 7 June 2020 Yes
5 Dubai South Dubai All licensees, (Even if relevant activity is not conducted) Email ESR Notification form

to economic.substance@dacc.ae

By 7 June 2020 Yes
6 DIFC Dubai All licensees, (Even if relevant activity is not conducted) DIFC portal By 30 June 2020 (extended from 12 June 2020) Yes
7 Dubai Internet City Dubai Only licensees conducting relevant activity axsportal –
https://axs.force.com/login
By 25 June 2020 Yes
8 Dubai Academic City Dubai Only licensees conducting relevant activity axsportal –
https://axs.force.com/login
By 25 June 2020 Yes
9 Dubai Science Park Dubai Only licensees conducting relevant activity axsportal –
https://axs.force.com/login
By 25 June 2020 Yes
10 Dubai Design District Dubai Only licensees conducting relevant activity axsportal –
https://axs.force.com/login
By 25 June 2020 Yes
11 Dubai Knowledge Park Dubai Only licensees conducting relevant activity axsportal –
https://axs.force.com/login
By 25 June 2020 Yes
12 Dubai Production City Dubai Only licensees conducting relevant activity axsportal –
https://axs.force.com/login
By 25 June 2020 Yes
13 Dubai Outsource City Dubai Only licensees conducting relevant activity axsportal –
https://axs.force.com/login
By 25 June 2020 Yes
14 Dubai Media City Dubai Only licensees conducting relevant activity axsportal –
https://axs.force.com/login
By 25 June 2020 Yes
15 Dubai Studio City Dubai Only licensees conducting relevant activity axsportal –
https://axs.force.com/login
By 25 June 2020 Yes
16 Emirates Tower Dubai Only licensees conducting relevant activity axsportal –
https://axs.force.com/login
By 25 June 2020 Yes
17 DMCC Dubai All licensees, (Even if relevant activity is not conducted) DMCC portal By 30 June 2020 Yes
18 Dubai Mainland (Ministry of Economy) Dubai Only licensees conducting relevant activity https://msurvey.government.ae/

survey/Ministry%20of%20Economy

/clf/en/direct?mailref=0

By 30 June 2020 Yes
19 Jebel Ali Free Zone Authority Dubai Yet to announce Yet to announce Yet to announce Yet to announce
20 AJMAN FZ Ajman All licensees, (Even if relevant activity is not conducted) email the ESR notification to
info@afz.ae
By 30 June 2020 Yes
21 Ajman Mainland (Ministry of Economy) Ajman Only licensees conducting relevant activity https://msurvey.government.ae/

survey/Ministry%20of%20Economy/

clf/en/direct?mailref=0

By 30 June 2020 Yes
22 Fujairah Mainland (Ministry of Economy) Fujairah Only licensees conducting relevant activity https://msurvey.government.ae/

survey/Ministry%20of%20Economy/

clf/en/direct?mailref=0

By 30 June 2020 Yes
23 RAK ICC RAK All licensees, (Even if relevant activity is not conducted) RAK ICC portal by a registered agent only (online form) By 30 June 2020 Yes
24 RAK EZ RAK All licensees, (Even if relevant activity is not conducted) RAK EZ portal (online form) By 30 June 2020 Yes
25 Ras Al Khaimah Mainland (Ministry of Economy) RAK Only licensees conducting relevant activity https://msurvey.government.ae/survey/

Ministry%20of%20Economy/

clf/en/direct?mailref=0

By 30 June 2020 Yes
26 Sharjah Mainland (Ministry of Economy) Sharjah Only licensees conducting relevant activity https://msurvey.government.ae/

survey/Ministry%20of%20Economy/

clf/en/direct?mailref=0

By 30 June 2020 Yes
27 Hamriyah Free Zone Authority (HFZA) Sharjah Only licensees conducting relevant activity By 30 June 2020
28 Sharjah Airport International Free Zone (SAIF) Sharjah All Licensee has to file the notification By 30 June 2020
29 Umm al Quwain Free Zone Umm-Al-Quwain By 30 June 2020 Yes
30 Umm Al Quwain  Mainland (Ministry of Economy) Umm-Al-Quwain Only licensees conducting relevant activity https://msurvey.government.ae/

survey/Ministry%20of%20Economy/

clf/en/direct?mailref=0

By 30 June 2020 Yes
31 Central Bank of UAE All Yet to announce Yet to announce Yet to announce Yet to announce

How can ZBS UAE support you for assessment on Economic Substance Regulation in the UAE?

  • To have a preliminary check done for your business on the applicability of Law.
  • If it is applicable, then to have checked in place on the satisfaction of Economic Substance Criteria’s.
  • If the criteria are not met, then to identify the gaps. Providing suggestions and improvements to ensure the compliance of Law.
  • To assist the Licensee to file Information Notification with the Relevant Authorities.

For Assessment on Economic Substance Regulations in UAE

Contact Person: CA. Muhammed Rafas
Email: rafas@zbsuae.com
Mobile:+971 50 406 2010
Contact Person:CA. Mubasheer Abdul Rehman
Email: mubashir@zbsuae.com
Mobile: +971 50 755 9223