Background

Ministerial Decision No. 100 for the Year 2020 on the issuance of directives for the implementation of the provisions of the Cabinet Decision No 57 of 2020 & Cabinet of Ministers resolution No. 57 of 2020 (revoking Cabinet resolution No.31 of 2019) concerning Economic Substance Regulations ( collectively ‘’the Regulations’’) imposes economics substance requirements on the companies in the UAE.

The Cabinet of Ministers enacted the ESR Regulations taking into account the relevant standards developed by the Organization for Economic Corporation and Development (‘’OECD’’) and the EU Code of Conduct Group (‘’COCG’’) regarding business taxation which aims to curb harmful tax practices.

Which entities are in-scope?

The Economics Substance Regulations are applied to the following entities that carry on a relevant activities;

  • Limited liability companies
  • Private shareholding companies,
  • Public shareholding companies,
  • Partnerships (LLP, LP, GP, etc.)
  • Any other entity with a legal personality separate from its owner.

But does not include; 

  • Investment funds
  • UAE branches of foreign companies whose entire relevant income is subject tax in parent company jurisdiction.
  • Licensees that are tax residents outside UAE
  • UAE resident owned businesses that are not part of an MNE group
  • Entities who are carried out entity’s activities only in the UAE

What are the Relevant Activities?

The Economic Substance Regulations specify below categories of activities as relevant activities;

  • Banking Businesses
  • Insurance Businesses
  • Investment Fund Management Businesses
  • Lease-Finance Businesses
  • Headquarter Businesses
  • Shipping Businesses
  • Holding Company Businesses
  • Intellectual Property Business
  • Distribution and Service Centre Businesses

Submission of Notifications and Reports

All UAE entities which are undertaking any of the relevant activities during the relevant accounting period will be required to submit Economic Substance Notification through the online portal at www.mof.gov.ae , confirming whether they are in or out of scope.

Entities that are claiming an exemption (Exempted Licensees) will be required to produce additional sufficient information to support its exempt status.

Entities that are in scope are required to file an economic substance report and as per the article (4) of the Ministerial Decision 100 of 2020, each licensee must file an Economic Substance Notification within 06 months of the end of the financial year of licensee or exempted licensee and Economic Substance Report within 12 months of the end of the licensee’s financial year.

Deadlines for Economic Substance Notification and Report for the year 2020-2021 are as follows;

Financial Year End

Notification filing deadline

ES Report filing deadline

31 December 2020

30 June 2021

31 December 2021

31 March 2021

30 September 2021

31 March 2022

 

What are the penalties for non-compliance?

Failure to submit Economic Substance Notification – AED 20,000

Failure to submit Economic Substance Report – AED 50,000

Failure to provide accurate or complete information – AED 50,000

How could Crevaty help?

The importance of compliance with the Regulations can’t be understated given the possible liability for extensive penalties. Our experts can help you navigate the complexities of the Regulations and ensure that you are meeting the requirements. We strongly recommend to all UAE entities to assess or re-assess whether and which of their entities and activities fall within the scope of the Regulations.

Source of information

www.economy.gov.ae

www.mof.gov.ae

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