Economic Substance Regulations (ESR) for a Headquarters Business in UAE

Economic Substance Regulations (ESR) for a Headquarters Business in UAE

Cabinet Resolution (No 31) of 2019 on Economic Substance Regulations (ESR), introduced on the 30th of April 2019, applies to corporate entities in the UAE which derive income from “relevant activities” in the financial years starting from the 1st of January 2019.

The legislation was specifically designed to provide reputation protection of jurisdictions in UAE and entities that are operating from them by making sure all income streams from the relevant activities mentioned in the Cabinet Resolution are on actual local activities and substantiate the utilization of the country’s low tax jurisdictions.

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ESR for a Headquarters Business in UAE

ESR for a Headquarters Business in UAE

The Economic Substance Regulations does not apply to all corporate entities in the UAE – rather, ESR applies to specific relevant entities that are carrying out relevant activities as per the Cabinet Resolution. Affected businesses are required to have a sufficient number of employees, physical presence, expenditure, and performance of core income generating activities within the UAE.

The importance of full compliance with the newly introduced substance regulations can’t be understated with the potential liability to acquire extensive penalties. Here in HHS Lawyers, our experts will be able to help your business navigate the new legislation and its complexities so you can meet the requirements of authorities.

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ESR Related Requirements for Headquarters Businesses

The Ministry of Finance provided a non-exhaustive list containing matters licensees are to consider prior to the end of any financial period:

  • Hold board meetings (a quorum has to be reached for directors that are physically present in UAE)
  • Make sure minutes of the board meeting are duly signed and kept on record in UAE
  • Assess all relevant activities the entity has performed during a financial period with the approach of substance over form
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ESR Related Requirements for Headquarters Businesses