Economic Substance Regulations (ESR) were introduced in April 2019 pursuant to Cabinet Resolution No. 31 of 2019 in order to prevent companies from establishing themselves in the UAE for the purposes of channelling payments which would otherwise be taxable abroad, and has successfully lead to the removal of the UAE from the EU tax haven blacklist. The ESR applies to all entities (including branches and representative offices) incorporated in the UAE (including free zones) and to financial years starting on or after 1 January 2019. The ESR requires entities to conduct an analysis of their income-related activities and using resources such as the flowchart produced by the Ministry of Finance, and the ESR Relevant Activities Guide, determine whether the entity is carrying on a “Relevant Activity” as defined in the ESR and the Ministry of Finance’s summary of Relevant Activities. The outcome from an analysis of the applicability of the ESR to an entity may need to be communicated by way of notification and submission of a report to the applicable authority designated with the responsibility to regulate and administer the ESR (such as the Ministry of Economy for most onshore entities and the free zone authorities for entities located in the UAE free zones).
Book a call with one of our company formation specialists.