Economic Substance Regulations(ESR) in Dubai

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Overview of Economic Substance Regulations(ESR) in Dubai

Economic Substance Regulation in Dubai

The United Arab Emirates (UAE) joined the Base Erosion and Profit Shifting Inclusive Framework (BEPS IF) on 16 May 2018, and has since taken significant steps to implement the BEPS minimum standards (i.e., Actions 5, 6, 13, and 14) and cement its position as an attractive regional and global hub for foreign direct investment. As a result of the same 2 new provisions was introduced into the compliance.

On 30 April 2019, the UAE Cabinet issued the Cabinet of Ministers a Resolution No.31 of 2019 (concerning economic substance regulation-ESR in Dubai UAE, “the Regulations”).

This was introduced with an aim to confirm that the Relevant Entities are carrying out an activity in the State that achieves economic substance interest within the UAE. This would eradicate the possibility that businesses aren’t been operated on a paper basis.

ESR IN DUBAI

The above-mentioned Regulations apply to all UAE onshore and free zone companies that carry on a “Relevant Activity”.

The following are considered as “Relevant Activities” under the Economic Substance Regulation (ESR in Dubai).

  • Banking Business
  • Insurance Business
  • Investment Fund Management Business
  • Lease-Finance Business
  • Headquarters Business
  • Shipping Business
  • Holding Company Business
  • Intellectual Property Business
  • Distribution and service Centers Business
A Relevant Entity ( as per resolution ) will be required to Report certain Information on its Relevant Activities on an annual basis to the relevant regulatory authority.The impact of the Economic Substance Regulation can be assessed only on a wider basis. For the Relevant Entities carrying a Relevant Activity it would just suffice to file a report based on the Regulations requirement. But the liberty in which the operations were carried earlier in UAE would not more be enjoyed by them.The disclosure of value of incomes and expenses from each operation would mean that the Regulatory Authority would have a summary of result of each entity. This would make sure that the corporates won’t be able to shift the profit generated by it without corresponding to local economic activities.Multi National Company Group which has its operations being outsourced to third party would get affected as now they require reporting that the management, supervision and no of employees of Relevant Activity would require to be reported. Therefore now they have to restructure their governance model to incorporate changes in light of the UAE economic substance requirements in order to be sure that regulations are in compliance.

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