The UAE Ministry of Finance has announced that the Economic Substance Regulations (ESR) are withdrawn. The announcement was made following the issuance of Cabinet Decision No. 98 of 2024, which amended the ESR.
The ESR was introduced in 2019 as part of the UAE’s commitment as a member of the OECD Inclusive Framework and in response to an assessment of the UAE’s tax framework by the EU Code of Conduct Group on Business Taxation. The ESR applies to all mainland and free zone legal entities carrying on “relevant activities,” which include banking, insurance, investment fund management, lease-finance, headquarters, shipping, holding companies, intellectual property, and distribution and service centres. Entities that fall within the scope of the ESR must demonstrate an adequate “economic presence” in the UAE with respect to the activities they undertake and comply with biannual reporting obligations.
A new article is added to specify the periods covered by the ESR, confirming that the provisions apply to financial years from 1 January 2019 through 31 December 2022. The ESR are withdrawn from financial years starting on or after 1 January 2023. Further, any administrative fines imposed on licensees or exempted licensees for noncompliance with the ESR for years after 31 December 2022 will be refunded.
It has long been expected that the ESR would be phased out following the introduction of corporate tax in the UAE (for prior coverage, see the article in the February 2022 issue of Corporate Tax News), although the timeline was previously unclear.
Ashish Athavale
Brian Conn
Mufaddal Safdari
BDO in United Arab Emirates
The ESR was introduced in 2019 as part of the UAE’s commitment as a member of the OECD Inclusive Framework and in response to an assessment of the UAE’s tax framework by the EU Code of Conduct Group on Business Taxation. The ESR applies to all mainland and free zone legal entities carrying on “relevant activities,” which include banking, insurance, investment fund management, lease-finance, headquarters, shipping, holding companies, intellectual property, and distribution and service centres. Entities that fall within the scope of the ESR must demonstrate an adequate “economic presence” in the UAE with respect to the activities they undertake and comply with biannual reporting obligations.
A new article is added to specify the periods covered by the ESR, confirming that the provisions apply to financial years from 1 January 2019 through 31 December 2022. The ESR are withdrawn from financial years starting on or after 1 January 2023. Further, any administrative fines imposed on licensees or exempted licensees for noncompliance with the ESR for years after 31 December 2022 will be refunded.
It has long been expected that the ESR would be phased out following the introduction of corporate tax in the UAE (for prior coverage, see the article in the February 2022 issue of Corporate Tax News), although the timeline was previously unclear.
Ashish Athavale
Brian Conn
Mufaddal Safdari
BDO in United Arab Emirates