A Licensee refers to an entity that is either a juridical person incorporated inside or outside the State or an Unincorporated Partnership registered in the State, including a Free Zone and a Financial Free Zone that carries on a Relevant Activity. Thus, the UAE Economic Substance Regulations (ESR) was introduced by the UAE government to fulfil global standards on taxation and to combat harmful tax practices. Businesses that conduct relevant activities are compelled to demonstrate sufficient economic substance in the UAE. Therefore, it is imperative for licensees to seek the services of top ESR consultants in the UAE to seamlessly meet ESR standards and stay compliant.
ESR requirements for licensees
Licensees ought to validate that they have a substantial economic presence and that are conducting relevant economic activities within the state.
The relevant activities include and are not limited to the following:
- Banking
- Insurance
- Intellectual property
- Holding company activities
Standards for determining whether a firm is a licensee
To decide whether a firm is a licensee under ESR, the following standards should be considered;
1. Holding a service license
A firm must hold a legal license, permit, or other form of approval in the UAE to conduct relevant activities.
2. Conducting relevant activities
The firm must conduct one or more relevant activities identified by the Economic Substance Regulation as aforementioned.
3. Income from relevant activities
The corporation must have relevant income from conducting relevant activities in the UAE, subject to tax within the jurisdiction. Subsequently, licensees are compelled to do the following:
- Gathering relevant ESR test requirements
- Filing an ESR notice
- Making an ESR report
Other obligations of a licensee under ESR?
Licensees are further compelled to meet the following requirements;
1. Conducting CIGAs in the UAE
A licensee must conduct its CIGAs in UAE to meet the Economic Substance Regulation. The CIGAs may include;
- Banking
- Insurance
- Investment Fund Management
- Lease-Finance
- Holding Company Activities
Therefore, it is important for licensees to understand the CIGAs related to the respective business to fulfil and meet the ESR standards.
2. Satisfying operational presence
A licensee must meet the Economic Substance Regulation by validating that it has sufficient employees, premises, and outlay in the UAE. The licensee must also demonstrate that it is directing and managing its CIGAs in the UAE.
3. Maintaining accurate records
A licensee must maintain correct records of its activities and the relevant financial material to support the economic substance regulations. The records should be adequate to validate compliance with the economic substance regulations. The records should be retained for 6 years.
How can ESR Consultants in UAE assist?
Essentially, licensees are compelled to comply with ESR obligations to avert fines for noncompliance. Non-compliance with ESR obligations accrues hefty financial penalties upon licensees and the penalty can be up to AED 50,000. Thus, it is imperative to seek the services of top ESR consultants in the UAE to seamlessly meet ESR standards and stay compliant.
