Economic Substance Regulations
As a member of the OECD inclusive framework, UAE is committed to ensuring that the UAE’s legal and commercial framework is in line with global standards. As apart of this commitment, Economic Substance Regulations (“ESR”) were introduced to the UAE in April 2019.
These regulations are applicable to all natural or legal person licensed to carry out a ‘Relevant Activity’ in the UAE. This includes licensees in Free Zones, Financial Free Zones and Offshore Free Zones. The regulations apply to financial year commencing from 1 January 2019.
All businesses are required to confirm to their Licensing Authority, whether they fall within the scope of the ESR.
The due date will be set by each licensing authority.
Businesses that carry out a ‘Relevant Activity’ are required to submit annual report.
This is due 12 months from the end of the financial year.
If you are concerned about whether your business operations meet the ESR tests and compliance obligations, our team of specialists can help. BDO offers a range of services to help you in this journey.
We would assist you in seeking answers to questions below:
Does this new regulation apply to your business?
Is the business carrying out a Relevant Activity as defined within the new regulation?
Is it a high-risk business from the ESR perspective?
Whether the business is meeting the ESR tests prescribed within the regulation?
Where gaps are identified and it leads to not meeting the test, we will proceed with a detailed review.
We would carry out a detailed assessment of the business operations in the UAE. This would cover:
Whether the relevant activity identified in our assessment is a Core Income Generating Activity (“CIGA”) as defined under the regulation;
Whether each CIGA meet the ESR Test;
Reviewing existing practices and agreements followed under corporate governance of the business; we will highlight the compliance risks and gaps identified;
Recommendations to mitigate the risks identified and steps to be taken to optimize the current practice.
We will help you in achieving compliance under ESR by assisting you in submission of:
Notification filing to the relevant Licensing Authority;
Annual reporting which will include assessment on meeting the ESR test, evidence supporting the assessment, gross income generated from these activities etc.
Sharing Compliance calendar which will list down important dates covering deadlines for notification, reporting under ESR and other corporate secretarial events.