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.
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:
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;
Investment fund activities include:
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;
Lease-finance companies must keep proper records and keep correct accounts to comply with ESR regulations.
Under the UAE Economic Substance Regulation, income refers to all gross revenue earned by a company accrued from a relevant activity.
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
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.
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.
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.