ECONOMIC SUBSTANCE REGULATIONS IN UAE
We would like to update you about the recently implemented UAE Cabinet Decisions No (13) of 2019 concerning Economic Substance Regulations (ESR). This law is applicable to all licensees (Mainland, Free zones and offshore companies) in United Arab Emirates and everyone is required to file notification with regards to any relevant activities they undertake. This is to be filed with respective Regulatory/licensing authority on or before June 30, 2020.
Key points to consider:
- There are 9 Relevant activities covered by the regulations. These activities are Banking Business, Insurance business, Investment fund management Business, Shipping Business, Lease-Finance Business, Distribution & Service Centre Business, Headquarter Business, Intellectual Property Business, Holding company business.
- UAE Businesses are expected to use a “Substance over form” approach to determine whether or not they undertake a relevant activity.
- This determination would require the UAE business to not only consider the activities stated under their commercial license or registration certificate but also to assess the activities carried out during a financial period.
- Any licensees with their financial year commencing after 1st of January 2019 may have to perform Economic Substance Test and file annual returns each financial year.
- Accurate assessment of relevant activities is crucial as the penalties for failing to notify the Authorities are between AED 10,000 and AED 50,000. Other penalties apply where Licensees fail to provide accurate or complete information or demonstrate sufficient economic substance in the UAE.
- Filing of notification and reporting are to be self-assessed which means the regulations require companies to be able to prove and explain to authorities the basis of your self- assessment by providing the relevant business and accounting records.
HOW CAN SOVEREIGN HELP?
Sovereign has a team of experts who can assist clients to navigate through their ESR requirements.
1. ESR applicability assessment:
- Detail study of your business activities in order to assess the applicability of Economic substance regulations on your activities.
- Providing support and guidance on filing notifications to the relevant authorities.
2. Economic Substance Regulations Test and compliance:
- Undertaking Economic Substance regulations impact assessment and gap analysis audit.
- Providing guidance and recommendations for compliance with the provisions of Economic Substance Regulations.
3. Final Reporting:
- Producing the final report for filing as per the requirements of relevant authorities.
- Assistance with filing of ESR report to the relevant authorities.
- Recording of all business transactions as per IFRS accounting principles and producing monthly, quarterly or yearly financial reports.
- Maintaining appropriate accounting records ensuring relevant activities and associated income are easily identifiable and presentable to authorities as and when required.