In 2016, 92 non-EU jurisdictions were assessed based on the following factors:
- tax transparency,
- fair taxation,
- compliance with measures against tax base erosion and profit shifting (BEPS).
Almost all of the 92 jurisdictions (including Liechtenstein, BVI, Monaco, Seychelles and many others) were deemed as having no real tax residency or formal legal status for entities and were included in the EU’s “grey list”. As a result, all of these jurisdictions made a commitment to adopt the ESR legislation.
Currently, the Economic Substance Regulations have been adopted and are complied with in over 130 jurisdictions all over the world.
On the 30th of April 2019, a new ESR legislation was also adopted in the UAE.
The new requirements apply to all legal entities incorporated in the UAE, including offshore companies and companies registered in free economic zones. According to ESR, companies carrying out so-called Relevant Activities must submit an ESR notification and a detailed ESR compliance report to the UAE regulator within 12 months following the end of each financial year. There are the following 9 Relevant Activities:
- Banking Business
- Insurance Business
- Fund Management Business
- Lease-Finance Business
- Headquarters Business
- Shipping Business
- Holding Company Business
- Intellectual Property Business
- Distribution and Service Centre Business
How to comply with the new ESR legislation?
ESR compliance focuses on 3 main points:
- Confirmation of real financial and operating activities of the subject company in the jurisdiction of its incorporation
- Local, suitably qualified employees
- Real physical company presence in form of office premises or the like
On the 1st of December 2020, the UAE Ministry of Finance launched a dedicated Economic Substance Filing Portal for all ESR notifications and reports.
An ESR notification includes the following information:
- Company details, such as company name, licence or registration number, registered office address
- Start/end date of the reporting period
- Name of Relevant Activities carried out by the company
- Information on tax residency of shareholders and ultimate beneficial owners (UBOs)
- Contact details of an authorised company representative (name, title, phone number, email address)
Some useful reads about ESR:
- Resumption of Application of Substantial Activities Factor to No or only Nominal Tax Jurisdictions (by OECD)
- FAQs about Base Erosion and Profit Shifting (BEPS)
- Information about how to submit ESR notifications and reports in the UAE
Not sure whether your business falls into the Relevant Activities’ category? Contact one of our experts to find out how to comply with the new ESR legislation.