The Economic Substance Regulations (ESR) were introduced in the UAE on 30 April 2019 under Cabinet of Ministers Resolution No.31 of 2019, with further guidance provided in Ministerial Decision No. 215 of 2019. These regulations require UAE-based businesses engaged in specific Relevant Activities to demonstrate adequate economic substance by passing the UAE Economic Substance Test. Companies that fall under these criteria must also submit an annual economic substance notification and report to the relevant authorities.
Entities that carry out Relevant Activities in the UAE are required to notify the regulatory authority annually. They must report:
Companies must submit an annual Economic Substance Report to demonstrate their compliance with the regulations, providing details of activities, income, expenses, and assets. This report must be submitted to the authority within 12 months of the end of each financial year.
To ensure compliance, businesses must take several key actions before the end of each financial period, including:
The Economic Substance Regulations apply to UAE businesses carrying out the following Relevant Activities:
Companies should adopt a substance-over-form approach to determine whether they undertake a Relevant Activity. This requires assessing not only the activities listed on their commercial license but also those carried out during the financial period.
Multiple Relevant Activities may be carried out during the same financial period, and companies must demonstrate economic substance for each activity unless ancillary to the main activity. Ancillary activities may be consolidated under the main Relevant Activity to avoid duplicate reporting.
Each Relevant Activity is overseen by a specific Regulatory Authority. The following are key authorities responsible for economic substance reporting in the UAE:
All onshore, free zone, and financial free zone companies in the UAE must demonstrate adequate economic substance for any Relevant Activities they conduct. AARMAK offers expert guidance to help businesses comply with the UAE Economic Substance Regulations.
Our team of seasoned professionals assesses whether your company is subject to these regulations, ensuring all Relevant Activities are properly reported. We assist with preparing and submitting the required notifications and annual reports to the appropriate regulatory authorities, helping you avoid penalties and ensuring full compliance.
AARMAK provides tailored solutions for Economic Substance Reporting to help you navigate the complexities of UAE regulations and maintain compliance across all sectors.
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