The United Arab Emirates (UAE) released the Cabinet of Ministers Resolution no. 31/2019 with effect from 30 April 2019, concerning the Regulations for Economic Substance (ES) in the UAE. The introduction of the new ‘ESR’ as it is known is a milestone for the UAE’s tax policy and an important step towards its alignment with the global Organization for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) directives. The new law requires that all the companies registered in UAE (‘licensee’) and carrying out Relevant Activities to demonstrate that they have effective substance in the country by satisfying an economic substance test on an annual basis.

Failure to comply would result in administrative penalties (not less than AED 10,000 but not exceeding AED 50,000 in the first year, increased to an amount not less than AED 50,000 but not exceeding AED 300,000 in the subsequent year), subject to a six-year limitation period. Additional penalties such as suspending, revoking or not renewing the UAE Relevant Entity’s trade license could also apply.

Ethics Plus can support you in assessing the impact of the new legislation on your business – providing preliminary assessments of your company’s current compliance obligations, and where required, help you find the most cost and time-effective solutions to meet your administrative and statutory compliance responsibilities.

For a more detailed overview on the scope of ESR including relevant activities ESR is applicable for and deadlines for reporting, please click here.