The Economic Substance Regulations (ESR) in the UAE are designed to prevent multinational corporations and businesses from artificially transferring profits to low-tax jurisdictions without conducting substantial activities there. The UAE is identified as one such jurisdiction.
As a response, the ESR mandates that businesses engaged in geographically mobile business activities submit a detailed annual report to authorities. The objective is to prove that these businesses have genuine substance and legitimate operations within the UAE.
If your business in the UAE is involved in certain activities (Relevant Activities), it’s crucial to file a notification within six months after your financial year ends. The notification should include information about the activities conducted, any earned income, and whether that income was taxed outside the UAE. If your UAE business has multiple branches, only one consolidated notification must be submitted.
Entities in the UAE may be exempt from filing under the Economic Substance Regulations (ESR) in certain situations. Exemptions apply to entities entirely owned by UAE residents and not part of a multinational group, provided they conduct their economic activities solely within the UAE. Additionally, licensees or entities that are tax residents outside the UAE, investment funds and branches of foreign companies subject to tax in other jurisdictions are exempt from these ESR filing requirements.
This test requires the core activities to take place in the UAE.
Your relevant activities should be directed and managed in the UAE.
This test demands adequate resources such as full-time employees, expenses and assets in the UAE.
Analysis of trade license, financials and activities performed by the company
Relating the relevant transactions to the relevant activities
Verifying if the company meets the Economic Substance tests
Filing the notification with the Ministry of Finance after six months of financial year ending
Preparing audited financials
Filing your ESR reports 12 months after the financial year ending
a) Raising funds, managing risk including credit, currency and interest risk
b) Taking hedging positions
c) Providing loans, credit or other financial services to customers
d) Managing capital and preparing reports to investors or any government authority with functions relating to the supervision or regulation of such business
a) Agreeing funding terms
b) Identifying and acquiring assets to be leased (in the case of leasing)
c) Setting the terms and duration of any financing or leasing
d) Monitoring and revising any agreements
e) Managing any risks
a) Predicting and calculating risk
b) Insuring or re-insuring against risk and providing insurance Business services to clients
c) Underwriting insurance and reinsurance
a) Taking relevant management decisions
b) Incurring operating expenditures on behalf of group entities
c) Coordinating group activities
a) Managing crew (including hiring, paying and overseeing crewmembers)
b) Overhauling and maintaining ships
c) Overseeing and tracking shipping
d) Determining what goods to order and when to deliver them, organizing and overseeing voyages
a) Taking decisions on the holding and selling of investments
b) Calculating risk and reserves
c) Taking decisions on currency or interest fluctuations and hedging positions
d) Preparing reports to investors or any government authority with functions relating to the supervision or regulation of such business
Where the Intellectual Property Asset is a:
1. Patent or similar Intellectual Property Asset:
a) Research and development
b) Marketing intangible or a similar Intellectual Property Asset: Branding, marketing and distribution
2. In exceptional cases, except where the Licensee is a High Risk IP Licensee, the Core Income Generating Activities may include:
a) taking strategic decisions and managing (as well as bearing) the principal risks related to development and subsequent exploitation of the intangible asset generating income
b) taking the strategic decisions and managing (as well as bearing) the principal risks relating to acquisition by third parties and subsequent exploitation and protection of the intangible asset
c) carrying on the ancillary trading activities through which the intangible assets are exploited leading to the generation of income from third parties
a) Transporting and storing component parts, materials or goods ready for sale
b) Managing inventories
c) Taking orders
d) Providing consulting or other administrative services
Activities related to a Holding Company Business
Insurance
Ecommerce
Manufacturing
Oil and Gas
Real Estate
Trading
Management Consultancy
Hospitality
Holding Companies
Logistics
