ESR Return Filing in UAE- Economic Substance Regulations

The Economic Substance Regulation (ESR) has been set forth by the Organization for Economic Cooperation & Development (OECD). The following are the fundamentals:

  • Curbs harmful tax practices
  • To prevent the jurisdiction from being included on the substantial activities by closely tracking the global standards
  • Facilitating offshore structures or arrangements aimed toward attracting profits which don’t reflect real economic activity in the jurisdiction.
  • Eradicate the shell paper companies
  • Inscription of various dependable concerns e.g. in respect of transparency, which the jurisdiction has been subject to form international players and investors alike.
  • Anticipated for some time after several other zero or low tax jurisdictions

In line with the aforesaid fundamentals, the inclusive framework on BEPS (Base Erosion & Profit Shifting) resulted in more exposure adoption for other countries. Also, the nobility to adopt and implement the standards was initiated by GCC members.

GCC members like Bahrain and UAE have substituted by broaching a resolution on Economic Substance. The pivotal aspect of the resolution is to provide the Core Income Generating Activities (“CIGAs”).

An outlook of the Resolution

The Regulations apply to companies completing Relevant Activities within the UAE, including those established in free zones. ‘Relevant Activities” includes involvement in or serving as the banking, investment fund management, insurance, headquarters, holding companies, finance leasing, intellectual property, and distribution, and service centers.

The UAE sovereign wealth funds and their related group subsidiaries are exempt, but free zone –incorporated holding companies within non –sovereign groups, such as those commonly established and will fall within the scope of the Resolution.

Publishing and Return Attributes

The Resolution requires a corporation that’s carrying on a Relevant Activity to organize and undergo the authority delegated to manage a Relevant Activity, on an annual basis following the Judgment Day of the civil year whether any of its associated income is subject to tax outside of the UAE and therefore the same to be submitted as report back to the UAE government.. The below chart illustrates the important dates and deadlines related to ESR:

Compliance, Imputation, and Inherent Challenges

Companies conducting Relevant Activity in the UAE (a Licensee), has to

  • Meet the economic substance test described for each Relevant Activity that it conducts and
  • Make annual notifications and reports to the regulatory authority

Failure to meet the economic substance test or make the required notifications and reports will result in fines of up to AED 300K, subject to the limitation period.

Beyond Numbers can help you in ESR Return Filing in UAE , Call us today for a free consultation on +971 50 452 0632

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