The UAE Economic Substance Regulation was implemented to endorse tax transparency, combat harmful tax practices and comply with the OECD standards. Thus, it is essentially advisable for licensees to seek the expert services of top ESR consultants in the UAE to establish sufficient substance and to stay compliant.
Which are relevant activities under ESR?
It is imperative for licensees to establish sufficient substance to determine their relevant activities as per the ESR statute. The relevant activities include and are not limited to the following:
The banking sector falls under relevant activities for ESR purposes in the UAE. Banking activities involve the following:
- Collecting Funds from Clients
- Managing Portfolios
- Providing Credit Facilities
The insurance business includes activities such as issuing policies and gathering premiums. To comply, insurance businesses must keep correct records and have qualified personnel to manage their core activities. These regulations help ensure that insurance companies have an open economic presence in the UAE and to avert tax-dodging practices.
As per the UAE Economic Substance Regulation shipping business conducts activities such as;
- Owning or Leasing Vessels
- Employing Qualified Personnel for Vessel Management
4. Investment Fund Management
Investment fund activities include:
- Managing Investments and Portfolios
- Making Investment Decisions
- Providing Investment Advice to Clients
5. Lease Finance
Lease finance is also a relevant activity under ESR. Lease Finance companies are compelled to have a sufficient economic presence in the UAE and have operations in activities such as;
- Owning or Leasing Assets
- Providing Financial Leasing Services
Lease-finance companies must keep proper records and keep correct accounts to comply with ESR regulations.
Income under ESR
Under the UAE Economic Substance Regulation, income refers to all gross revenue earned by a company accrued from a relevant activity.
Types of incomes
There are 5 types of income under ESR which include:
Direct income states to income that is produced from activities that are directly related to the core business of the entity.
Indirect income refers to income that is produced from activities that are not directly related to the core business of the entity but still contribute to its overall revenue.
Foreign income refers to income that is produced from activities external to the UAE. The Economic Substance Regulation compels entities to report their foreign income if it is subject to tax in another authority and the applicable tax rate is less than 50% of the UAE’s company tax rate.
Exempt income states income that is exempt for purposes of ESR assessment in the UAE.
Non-business income refers to income that is not produced from the unit’s core business activities. For example, if an entity produces interest income from its bank deposits, this would be reflected as non-business income.
Adequate number of employees, premises, and equipment
Companies must have a satisfactory number of employees, premises, and equipment to carry out their appropriate activities in the UAE to establish substance and presence.
How can ESR Consultants in UAE assist?
Licensees in UAE are compelled to demonstrate adequate substance for ESR purposes to which noncompliance accrues fines. Thus, it is advisable for companies to seek the expert services of top ESR consultants in UAE to establish substance and to stay compliant.