Have any questions ? enquire@risiansaccounting.com    +971 585919051
Auditing, VAT, Accounting & Business Consultancy Services in UAE
Blog Image

Economic Substance Regulations In UAE

Accounting 2021-04-07

The European Union (EU) has blacklisted those countries that don’t have criteria to meet with EU fair taxation, tax transparency, and measurement of the (BEPS)   base erosion of profit shifting.

Economic Substance Regulations: In 2019, the UAE government has introduced the Economic Substance Regulation (Cabinet of Ministers Resolution No. 31 of 2019), in UAE for un-blacklisted from the list of EU.  After implementation of the Economic Substance Regulation (ESR) system, UAE has been removed from the list of blacklisted countries by the EU. On 10 August 2020, UAE cabinet Minister issued Cabinet Resolution No. 57 of 2020 Concerning Economic Substance Requirements. Which gives the revision set of  Economic Substance Regulations. For the implementation of the provisions of the economic substance requirement and Ministerial Decision No. 100 of 2020 on the Issuance of Directives was introduced on 19 August 2020. This decision also repeals and replaces Cabinet of Ministers Resolution No. 31 of 2019 and Cabinet of Ministers Resolution No. 58 of 2019. 

 

UAE Regulation Authorities 

 

?Federal Entities

Ministry of Economy

Central Bank

Insurance Authority

Security and Commodities Authority

?Free Zones

Abu Dhabi

Abu Dhabi Global Market

Media Zone Authority Dhabi

Abu Dhabi Airports Free Zone

Abu Dhabi Ports

MASDAR City

Dubai 

Dubai Airport Free Zone

Dubai Healthcare City Authority

Dubai International Financial Center

Meydan

Dubai South / Dubai Aviation City 

Jebel Ali Free Zone Authority/ DP World

Dubai World Trade Center

International Humanitarian City?

Dubai Development Authority

Dubai Silicon Oasis

Dubai Maritime City

Dubai Multi Commodities Centre

?Sharjah

Sharjah Airport International Free Zone Authority

??Hamriyah Free Zone Authority

Sharjah Media City (Shams)

Sharjah Publishing City

Sharjah Research Technology and Innovation Park

Sharjah Healthcare City  

Ajman

Ajman Free Zone Authority

Ajman Media Free Zone Authority

Ras Al-Khaimah

RAK International Corporate Centre

Ras Al Khaimah Economic Zone

RAK Maritime City 

Um Al-Quwain

UAQ Free Trade Zone

Fujairah

Fujairah Free Zone

International Free Zone Authority 

Fujairah Creative City?

??

Above table source link here.

 

Scope of the Economic Substance Regulation

Natural persons, sole proprietors, trusts, and foundations regulations do not apply. It’s applied to:-

  • Any incorporated legal person.
  • unincorporated partnership registered in the license of the following activities.

 

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

Relevant business should obey the Economic Substance Regulation requirements:-

  1. Manage all income-generated activities as per ESR.
  2. Activities that directed and managed in the UAE
  3. Consideration level of the activities functions. (i) Businesses should have sufficient full-time qualified employees, (ii) Have sufficient and property physical assets in the UAE. (iii) Bear the amount of the operation expenditure in the UAE.

 

Penalties in Economic Substance regulation (ESR)

Businesses will be penalized if they fail in complying with ESR in UAE.

  1. Businesses get penalized from AED10,000 to AED 50,000 If businesses fail to present adequate ESR and also fail to provide accurate and complete information for the relevant year.
  2. Businesses can get a penalty of AED10,000 to AED 50,000, what if the business is failed to provide accurate and complete information about the exchange with a foreign parent company or ultimate beneficial ownership.
  3. If the business is failed in the second financial year in the above two things then the license could be canceled, not renewed, and withdrawn. Also, get a penalty of AED100,000 to AED 500,00.

 

What is the Economic Substance in Accounting?

All the transaction that has a purpose or related to the reduction of tax liability.  It’s used to evaluate and examine tax to see if there is anything that is abusing the tax law. If tax abuse is found then it will be penalized by the IRS. ESR is most important because in the Substance report we provide full and accurate information about the tax transaction and other transactions in which ESR is applied during the financial year. To get more details about it Feel free to contact us, we will be happy to hear you directly. The main purpose of the Economic substance report is to provide the 

National Assessing Authority with the information of license, assets, income & expenditure, employees, and governance-related to its Relevant Activities in the UAE.

If you have more than a license then you have to provide a report for each license. The Economic substance report is submitted online on the Ministry of Finance portal.

Here is the MOF guide on ESR click here. Hire the best economic substance reporting service and save your business from the penalty and any other harm.

 



Author image
Mr. Abbas AUTHOR
SAVE BIG ON TAXES

Let’s connect and discuss how outsourcing can help you save on costs and scale your business.

calling

SOFTWARE CAPABILITIES

software capabilities
software capabilities
software capabilities
software capabilities
software capabilities
software capabilities
software capabilities
software capabilities
software capabilities
software capabilities
software capabilities
software capabilities

My experience in working with this team is very much a positive one. Their professionalism is refreshing. Thank you for making the process a very pleasant experience.

Ms. Arshameh Parmoun Tag Properties

We have been working with RISIANS Chartered Accountants on a couple of assignments. At all times they are professional, organized with whatever assignments we have entrusted with them. Being a approved audit firm they are well aware with the regulations and compliances. I will recommend the team highly enough and shall certainly be engaging with them again and again in future assignments.

Moin Abbas Al Ajwad Auto Works

I would overall rate team RISIANS work as exceptional. The team was successful in delivering quality audit, irrespective of the tight deadline and it was way better than the predecessor. We can definitely build more knowledge for future.

Ajit G Vernekar AL SHAFAF REPACKING SERVICES

RISIANS proactiveness and precision towards managing our accounts and helping us constantly whenever we are in need of is a dynamic quality that makes us want to recommend to any company or an individual. Looking for a great accountants without any hesitation.

Aqeeb Aqeeb Internstional
CONTACT FORM
Office No-112, 1st Floor, National Insurance Building,
Sheikh Zayed Road, Dubai-UAE

Enquiry

Let's do this!

Sit Back, Relax, and let us do it with our professional team.

ghrhryj