Economic Substance Regulation (ESR) Compliance & Filing in Dubai, UAE

As part of its commitment to global tax standards and in response to an assessment by the European Union Code of Conduct Group, the UAE has enacted the Economic Substance Regulation (ESR) to align with the OECD’s Base Erosion and Profit Shifting (BEPS) framework. This regulation, introduced on April 30, 2019, requires entities engaged in “Relevant Activities” in the UAE to comply with specific substance requirements.

If your business is based in the UAE, it’s essential to ensure that you comply with the ESR to avoid penalties and potential legal issues.

Who Needs to Comply with ESR in UAE?

The ESR applies to all UAE onshore and free zone companies that carry out any of the following “Relevant Activities”:

• Banking
• Insurance
• Fund Management
• Lease-Finance
• Headquarters
• Shipping
• Holding Companies
• Intellectual Property (IP)
• Distribution and Service Centres

The regulations also apply to entities engaged in these activities, even if they are part of free zones, provided they meet the criteria outlined in the law. Government-owned entities, including sovereign investment funds, are exempt from ESR.

What Are the Economic Substance Requirements?

To comply with ESR, businesses must ensure they meet the following requirements:

1. Core Income-Generating Activities: The company must conduct the relevant activities within the UAE.
2. Management and Direction: The business must be directed and managed in the UAE.
3. Employee Requirements: The company should have a sufficient number of qualified full-time employees in the UAE.
4. Operating Expenditure: Adequate operating expenses must be incurred within the UAE.
5. Physical Assets: The company must have physical assets in the UAE related to its activities.

Key Relevant Activities under ESR

The ESR includes specific requirements for various business activities. Here’s a breakdown of what qualifies as a Relevant Activity:

• Banking: Activities such as raising funds, managing risk, providing loans, and preparing reports for investors or government authorities.
• Insurance: Activities like underwriting, insuring, and re-insuring, along with risk prediction and calculation.
• Fund Management: Decisions regarding holding, selling investments, and preparing regulatory reports.
• Lease-Finance: Terms for financing and leasing, risk management, and monitoring contracts.
• Headquarters: Management decisions and operational expenditure coordination for group entities.
• Shipping: Managing crews, maintaining ships, and overseeing voyages.
• Holding Company: Managing business activities and income generation.
• Intellectual Property (IP): Management of IP, including strategic decisions on intangible assets.
• Distribution and Service Centres: Consulting, procurement, and services provided to foreign affiliates.

Reporting and Filing Requirements for ESR Compliance

Businesses subject to ESR must adhere to the following reporting obligations:

1. ESR Notification: Companies need to file an ESR notification with the relevant authority where the company is registered.
2. Annual Return: An annual return must be filed within 12 months from the end of the financial year or as required by the relevant authority.

Failure to comply with these requirements can lead to significant penalties.

Penalties for Non-Compliance with ESR

Non-compliance with the ESR can result in severe penalties, including:

• Fines: Fines ranging from AED 10,000 to AED 50,000 in the first year. This can increase to AED 50,000 to AED 300,000 in subsequent years.
• License Issues: In extreme cases, penalties may include suspension, revocation, or non-renewal of the company's trade license.

How Proficient Can Help You with ESR Filing in Dubai, UAE

At Proficient, we specialize in ensuring that your business complies with the ESR requirements. Our expert team can help you navigate the complexities of the regulation and provide guidance on all aspects of ESR compliance.

Our ESR services include:

• Preliminary Assessment: We assess the applicability of ESR to your business and help identify potential risks associated with non-compliance.
• Strategy & Action Plan: Proficient will help you define a clear strategy to meet ESR requirements and implement an effective compliance plan.
• Notification & Filing: Our team ensures timely submission of the required ESR notifications and annual reports to the relevant authorities.
• Ongoing Support: We support your business in staying compliant, allowing you to focus on operations and growth without worrying about regulatory changes.

Why Choose Proficient for ESR Compliance?

When it comes to ensuring your business is compliant with the ESR in Dubai and the UAE, Proficient Accountants is your trusted partner. Our expert advisors are familiar with the latest ESR regulations and can help you:

• Avoid Penalties: Ensure that you meet all ESR requirements on time and avoid hefty fines.
• Focus on Growth: With Proficient managing your ESR filings, you can concentrate on scaling your business.
• Expert Guidance: Our team provides clear, straightforward advice and solutions to keep you compliant in a constantly changing regulatory environment.

Get in Touch with Proficient for ESR Filing & Compliance Services

If you’re looking for reliable ESR filing and compliance services in Dubai, Abu Dhabi, or anywhere in the UAE, Proficient is here to assist you. Contact our team today to ensure your business meets all the regulatory requirements and stays ahead of any compliance issues.