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Economic Substance Regulations - UAE

Background of ESR-UAE

As a member of the OECD Inclusive Framework, the UAE is committed to ensuring that the UAE’s legal and commercial framework is in line with global standards and is subject to review by the OECD to ensure that these standards are implemented On 27 June 2018 the UAE signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“BEPS”), which came into force on 1 September 2019.

UAE has passed the following Federal Legislation to implement the convention which applies across the UAE in every jurisdiction, including all Free Zones and Financial Free Zone (such as the DIFC):

Regulations

As part of the UAE’s commitment as a member of the OECD Inclusive Framework, and in response to an assessment of the UAE’s tax framework by the European Union (“EU”) Code of Conduct Group on Business Taxation, the UAE introduced a Resolution on the Economic Substance (Cabinet of Ministers Resolution No.31 of 2019, the “Regulations”) on 30 April 2019, The Regulations are effective from 1 January 2019. There are two filing requirements under the Regulations:

I. ESR Notification; and
II. Annual ESR Return.

Scope of ESR

Who is subject to the regulations?

A “Licensee ” under the Regulations is a natural or juridical (legal) person licensed by the competent licensing authority/authorities in the State to carry out a Relevant Activity in the UAE, including a Free Zone (including an offshore free zone) and a Financial Free Zone (e. g DIFC).

Coverage of Legislation

Whole UAE

Free Zones

Financial Free Zones

Who is exempt?

Licensees that are directly or indirectly owned 51% or more by the UAE government (Federal or Emirate level) are exempt from UAE ESR.

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