ESR- Which Companies Should Be Worried?

The European Union’s review of the tax framework in the United Arab Emirates led to the UAE being listed as a non-cooperative jurisdiction for tax purposes, also known as the EU Blacklist. To address this, the UAE introduced the Economic Substance Regulations (ESR) to align with international standards and remove its name from the blacklist.

Under the ESR, certain activities are considered relevant and subject to regulation. These include Banking, Insurance, Investment Fund Management, Headquarters, Holding Company, Shipping, Lease Finance, Intellectual Property, and Distribution and Service Centre businesses. Even if not explicitly stated in the commercial license, engaging in any of these activities necessitates compliance with the ESR.

For instance, companies providing loans with interest or earning income from intellectual property rights are considered to be conducting relevant activities, irrespective of their primary business. However, companies without operations outside the UAE, no interest income, and no intellectual property holdings need not worry about ESR compliance.

Companies subject to ESR must file an annual Economic Substance Notification disclosing information such as the financial year end, relevant activities conducted, income generated from these activities, taxation status, and any exemptions due to government ownership. Non-compliance can result in penalties ranging from AED 50,000 to 300,000.

Given the complexity of ESR requirements, seeking assistance from a reliable business consultancy like Elysian Consulting Group is advisable. Their experts can help navigate ESR compliance, prepare notifications, and generate reports, ensuring adherence to regulatory standards. Contact, Elysian for comprehensive financial services tailored to your business needs.