The Economic Substance Test requires a Licensee to demonstrate that: the Licensee and Relevant Activity are being directed and managed in the UAE; the relevant Core Income Generating Activities (“CIGAs”) are being conducted in the UAE; and The entity will need to be directed and managed in the jurisdiction with regards to the relevant activity & The entity will need to have an adequate number of qualified employees, incur adequate expenditure in the jurisdiction proportionate to the level of activity and have adequate physical presence in the jurisdiction (e.g. office space, facilities, etc.). Find more here
The regulations set out a reporting framework that applies to companies and/or licensees carrying out “Relevant Activities”. These activities are listed as follows:
Persons excluded from ESR applicability
(i) Entities are not part of a multinational group, and
(ii) All activities of business are carried out only in the UAE.
An Exempted entity must
(i) file a notification and
(ii) provide sufficient documentary evidence to substantiate the exemption status
Economic Substance Test and Reporting Requirements
Every Licensee and Exempted Licensee is required to submit a Notification to their respective Regulatory Authorities setting out the following for each relevant Financial Year
According to Revised ESR, the Notification must be submitted within six months from the end of the Financial Year of the Licensee or Exempted License.
Every Licensee shall be required to meet the applicable Economic Substance Test requirements and submit an Economic Substance Report containing the requisite information and documentation prescribed under the ESR Regulations within twelve months from the end of the relevant Financial Year.
A UAE business that undertakes one or more of the above activities during the relevant Financial Year is referred to as a Licensee. Where a business carries out one or more of the above activities but is exempt from certain requirements under the Economic Substance Regulations, the entity is referred to as an Exempted Licensee.
Yes, the business must report all Relevant Activities undertaken during the Financial Year, irrespective of whether the Relevant Activity was conducted throughout the entire Financial Year
No, each Licensee must file a Notification on a stand-alone basis, irrespective of whether the Licensee is part of a consolidated group for accounting or VAT purposes
No, the UAE head office / parent company must file a single consolidated Notification that includes details of all its UAE branches that carry out a Relevant Activity, irrespective of whether the head office itself undertakes a Relevant Activity.
The Notification must be submitted electronically on the Ministry of Finance ESR portal.
If the Licensee undertakes a Relevant Activity in the year of liquidation, the entity or its liquidators must ensure
that all obligations under the Economic Substance Regulations are satisfied for the period up to liquidation,
including the filing of a Notification and Economic Substance Report (where applicable)
Non-compliance with the obligation to file a Notification before the deadline is subject to a penalty of AED 20,000
Providing incorrect or false information in the Notification is subject to a penalty of AED 50,000. Knowingly providing incorrect or false information or incorrectly claiming an exemption from the Economic Substance
Regulations can result in the Licensee being deemed to have failed the Economic Substance Test for the relevant