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Economic Substance Regulations Services In Dubai

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Economic Substance Regulations Services In Dubai

Economic substance regulation applies to all licensing firms in UAE to control tax evasion whether they are individuals or corporates. This law applies to almost 11 countries around the globe.

Economic Substance Regulations were implemented back in April 2019 in the United Arab Emirates but replaced by the new cabinet of ministry resolution no 57 of 2020 by the Organization of Economic Cooperation and Development (OECD). The main agenda of the OECD is to control Base Erosion and Profit Sharing called BEPS practices and also they make a 15-step action plan. There is a minimum of 5 action plans that each OECD member should comply with, including Harmful Tax Practices also known as Economic Substance Regulations.

Purpose Of ESR In UAE

The main purpose of Economic Substance Regulation is to govern tax liability in UAE through the relevant authorities. Because many organizations, especially multinational corporations save a lot on taxes and take advantage of different low-tax jurisdictions. This amended regulation assures the business has a physical presence here and conducts all economic activities in the United Arab Emirates, rather than just having a license that shows income in this country.

ESR enhances the reliability of doing business here, as well as grows the economy of the United Arab Emirates.

Participants In Amended Economic Substance Regulations

There are many critical changes in the amended economic substance regulations such as specific business categories must abide by the ESR law. The ESR specially focused on companies that perform and earn income on the mainland, offshore, Free Zones, and Financial Free Zones. The main participants in the amended regulation are stated below.:

  1. Banking Business
  2. Insurance Business
  3. Investment Fund Management Business
  4. Lease-Finance Business
  5. Shipping Business
  6. Holding Company Business
  7. Intellectual Property Business
  8. Headquarter Business
  9. Distribution and Service Centre Business

Entities Exempted From ESR

The Amended Regulations clearly defined exempted licensees that are not meeting the requirements under the Economic Substance test in UAE. However, they will still file a notification that they are exempted from ESR along with a piece of documentary. An entity would be an exempted Licensee if they were registered in UAE, conduct relevant activities and:

  1. Investment Fund
  2. Tax jurisdiction outside the UAE
  3. An entity wholly owned by residents means a UAE resident and a person having a UAE permit. Also, not a part multinational group and conducts all business activities exclusively in the UAE
  4. Branch of a foreign entity whose income is taxable in the jurisdiction where the foreign entity is incorporated

In addition, the Amended Regulations do not specifically exempt entities that are directly or indirectly owned by the UAE government by at least 51%.

Relevant Authorities As Per The Amended Regulations

These are the relevant authorities that notify, test, submit your ESR application:

  • National Assessing Authority
  • Regulatory Authority
  • Ministry of Finance

What Is Meant By An Adequate Substance?

There are specific characteristics of adequate substance, which means that relevant business activities should comply with ESR notification, test, and reporting. This is the foremost step to identify an adequate economic substance in the United Arab Emirates:

  • Having a number of qualified employees
  • Directed and managed in UAE
  • Expenditure in proportion to business activity
  • Physical Presence in UAE
  • Adequate physical assets in UAE
  • Conducts core income-generating activities in UAE

Economic Substance Regulation Complete Procedure

The economic substance regulation submission in UAE is a little bit tricky and lengthy procedure. Although, this positively impacts the overall economy of the United Arab Emirates as well as grows your business. This is the essential process to comply with ESR under any respective authorities.

ESR Assurance & Assessment

First of all, we need to prove that business has adequate economic substance in the United Arab Emirates. Also has to prove Core Income Generating Activities (CIGA) within this country. Then you should assess which relevant activities are being conducted, and does it needs ESR implementation for doing business or not in the UAE.

Submission Of ESR Notification

The licensing firm has to notify the relevant authorities if they are conducting any of those relevant activities in the United Arab Emirates. The requirements and processes for ESR notification are different for each of the licensing authorities.

All companies are obliged to assess their position with regard to ESR and submit the notification to the relevant authorities. In the amended resolution all licensing and exempted licensing need to resubmit the ESR notification on the portal of the ministry of finance once. Each relevant authority has a different procedure for notification submission. Some require it to be sent through email while others have online portals.

Economic Substance Test

An economic substance test is conducted for validation on given ESR information and documents. It assures your adequate economic substance for licensees that determine the business is exempted or non-exempt from amended resolution in the United Arab Emirates.

Annual ESR Reporting

The last step is to submit a report only from the companies that are conducting these relevant activities. This needs to be submitted within 12 months of the financial year-end to assure that respected authorities meet your ESR test.

Neglecting The ESR Can Result In:

Economic substance regulation is mandatory for all licensees that fall under the defined business category in the United Arab Emirates. If anyone fails to comply with amended Economic Substance Regulations to relevant authorities then they have to pay the penalty of AED 50,000 to AED 300,000. Also suspension of licenses, as well as other administrative sanctions such as the suspension, revocation, or non-renewal of the business’s trade license or permit.

How BestaxCA Can Assist You In ESR Compliance?

Bestax Chartered Accountants and consultants are specialized in Economic Substance Regulations services in Dubai, UAE. The team of experts helps you out with deep knowledge of relevant authorities and saves your business from any kind of penalty. Here are some advantages of selecting BestaxCA for imposing economic substance regulation:

  • Understand your business and its scope for Economic Substance Regulations Services in Dubai
  • Comprehensively assist you with Economic Substance Regulations compliance obligations
  • Help you in notifying economic substance regulations according to authorities
  • Assure all relevant licensees that they meet the Economic Substance Regulations test efficiently
  • Accountants help you in the preparation and submission of ESR annual reports
  • Committed to saving our clients from the non-compliance penalty of ESR

The economic substance regulations are a set of UAE laws and regulations that require certain entities to demonstrate their economic substance in the UAE.


The economic substance regulations apply to all UAE-based entities that carry out relevant activities. These include, but are not limited to, banks, insurance companies, investment funds, and holding companies.


The UAE has harsh penalties for businesses that do not follow economic substance rules. These fines range from AED 10,000 to AED 50,000. Companies that do not satisfy the criteria in the following year will be fined between AED 50,000 and 300,000.

The best way to ensure compliance with the economic substance regulations is to seek professional help. If you have any further questions about the economic substance regulations, please contact one of our experienced consultants.


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