You might be aware that UAE is a member of Organization for Economic Co-operation and Development (OECD) Inclusive Framework on Base Erosion and Profit Shifting (BEPS). In a recent development, UAE has introduced the Economic Substance Regulations (ESR) and experts feel that this development can be significant in this industry.

This introduction of ESR has dragged the attention of market gurus as well as of those numerous companies which are in the investment business.  Consequently, it has become essential that the investment companies re-look their functioning and study their business in the light of this development.

If you manage such a business, you can largely benefit from this article and therefore, we insist that you read this article. This article not only highlights and studies the impact of Economic Substance Regulations ESR on different businesses engaged in investment activities but also has valuable hints for you.

Firstly, let’s study the effect of Economic Substance Regulations on Holding Company Businesses so that you can know if your business will be influenced by it.

A. Effect of Economic Substance Regulations on Holding Company Businesses

 a.  Companies that are not into any other commercial activities:

In this category, we can include those companies which are in acquisition and holding of shares. Further, this category also includes those companies which are in equitable interests with other Companies.

ESR Impact: Yes, ESR impacts these companies.

Action required: These companies must comply with reduced Economic Substance Regulation requirements. So they will have to go for ESR notification filing.

b. Companies that are into other commercial activities too:

In this category, we can include those companies which are involved in other commercial activities. In addition to this, we may also include such companies in this category which hold other forms of investment like interest-bearing loans. Identically, this category may also have companies which are into acquisition and holding of shares or which have equitable interests in other companies.

ESR Impact: Yes, ESR impacts these companies.

Action: These companies must comply with full economic substance regulations UAE requirements. This may be subject to condition if the other activity or asset brings UAE business within the scope of a different Relevant Activity category.

 

Secondly, let’s look at the effect of Economic Substance Regulations UAE on Investment Funds and see if your business will be influenced by it.

B. Effect of Economic Substance Regulations on Investment Funds

a. Companies that are managed by an Investment Fund Management Business:

In this category, we include companies which do not manage the funds themselves. The fund management is done by an Investment Fund Management Business.

ESR Impact: No, ESR does not impact these companies.

Action: These companies do not have to fill the ESR notification form.

 

b. Companies with Self-managed Investment Fund:

In this category, the Investment Management and the Investment Fund are part of the same entity.

ESR Impact: Yes, ESR impacts these companies.

Action: These companies must comply with ESR requirements. Therefore, they have to complete the economic substance notification form.

 

c. Investment Fund Management:

In this category, we include those companies which are involved in making investment, divestment. Together with this, they also have to take risk related decisions on behalf of an Investment Fund.

ESR Impact: Yes, ESR has an impact on these companies.

Action: These companies are required to comply with ESR requirements. Therefore, they must declare ESR investment.

 

d. Investment Fund Related Service Providers:

In this category, we include UAE based companies which provide services such as Fund administration, custodian, investment advisory, etc and also those which deliver other investment fund related services.

ESR Impact: No, ESR does not impact these companies.

Action: These companies do not have to take any action.

 

In short, it’s important that all such businesses in UAE should understand the prominent aspects of economic substance notification form. Therefore, we hope you will largely benefit from the information shared by us. We are sure you will obtain better clarity about ESR notification through this article. We have also tried to explain its implication on businesses engaged investment and related businesses.

However, we insist you to take advantage of our ESR solutions and gain complete clarity regarding the applicability of these regulations.

Reach us for more information at [email protected]. In addition, you may also submit your queries at the same email id.