As a recent development in the business world, businesses operating in UAE will soon have to synchronize themselves with the ‘Economic Substance Regulations’. So, if you are a company operating in UAE, you should know about the ESR.

We, being an expert in this area, can help you in understanding ESR and you may take advantage of our services. We insist you to obtain appropriate help from us with regard to Your Economic Substance. But before that, it is good for you to read on this article.

As is evident, UAE is a member of the Organization for Economic Co-operation and Development (OECD) Inclusive Framework. Recently, the Economic Substance Regulations UAE were introduced on BEPS (Base Erosion and Profit Shifting) after a thorough assessment.

In this assessment, the European Union assessment team elaborately studied UAE’s tax reporting framework.

Let us first know what the ESR or Economic Substance Regulation is.

What is Economic Substance Regulation (ESR)?

First, understand the purpose of ESR. The purpose of ESR is to introduce transparent tax laws in such a manner that multinational companies can be stopped from avoiding and eroding taxes. As a popular practice, almost all multinational companies, which conduct economic activities in a particular jurisdiction, later shift their profits to some other jurisdiction.

For this, they select such jurisdictions where, either there are no taxes or where nominal tax rates (NOONs) are imposed. As a result of this, these companies harm the tax base of the place where they do business. This happens because the profit gets shifted to the NOONs.

So now, after the ESR has got introduced in the UAE, certain legal entities are bound to report about their activities and they should also inform that they had performed substantial economic activities in the said jurisdiction, as per the provisions of Economic Substance Test.

Being a serious business owner, you must know that the Economic Substance Regulations UAE (ESR) requires all licensees to file the ESR notification form with the concerned regulatory authorities. It is an essential aspect in filing the annual Economic Substance Return for the reported period. The ES notification form provides initial information of a licensee to the regulatory authority under which it is registered.

Now once you have understood the “what” part of ESR, further, let’s see who is liable to file the ESR Notification.

Who should file the ESR Notification?

Every natural and legal person in the UAE, including all the onshore and free zone companies, partnerships, non-profit organizations, branches, foundations (also referred to as “Licensees”), must submit the ESR notification form. In other words, Economic substance regulation compliance is now a mandatory thing in the UAE.

Further, it is equally import to understand that all such entities, which participate in the following activities or deliver the following services, should file the annual ESR. According to the ESR, these activities are as under:

  • Banking
  • Insurance
  • Investment fund management
  • Lease and finance
  • Shipping
  • Headquarters
  • Holding company
  • Intellectual property
  • Distribution and service center

Next, let us understand the Economic Substance Regulation Notification Form in detail.

What is the Economic substance regulation notification form?

The Economic Substance Regulation Notification Form constitutes some information about the business of the licensee and hence, every licensee has to furnish it. This information should be as under:

The licensee should inform if the business is conducting relevant activities.

If the answer to the first question is affirmative, the licensee should tell if a part of its gross or complete income, which the licensee is generating from a relevant activity, is subject to taxes in a jurisdiction outside of the UAE.

The licensee should also include information about the year-end date of the financial or accounting period.

Before we conclude, we reiterate you to get a better understanding of the economic substance regulations compliance in consultation with our concerned experts. For this, you may get in touch with us at any time. In addition, you may seek our services so that you can get updates about the respective submission deadlines. Likewise, you can also for other information about ESR.

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