The United Arab Emirates (UAE) introduced a set of rules generally known as the Economic Substance Regulations (ESR) in 2019 to combat tax avoidance by multinational companies and increase transparency. The ESR applies to all mainland and free zone legal entities (Licensees) carrying on Relevant Activities. This alert summarises the main ESR requirements and sets out a reminder of important deadlines.
The ESR requires Licensees to demonstrate that they have a genuine economic presence in the UAE and that the activities they carry on are not solely tax driven. Licensees may be required to prepare and submit an economic substance notification and an economic substance report from 1 January 2020 onwards, on an annual basis.
Pursuant to the ESR, Licensees that carry on a Relevant Activity in the UAE that generates revenue/income (either a profit or a loss) must maintain an adequate presence in the UAE such as through having an adequate level of or number of qualified employees. In addition, the strategic management decisions of the Licensee must be conducted in the UAE.

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What are the Relevant Activities?

Any Licensee carrying on any of the below activities may be required to prepare and submit a Notification and potentially a Report to the Ministry of Finance.

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    Banking business
    Investment fund management business
    Headquarter business
    Holding company business
    Distribution and service centre business
    Insurance business
    Lease-finance business
    Shipping business
    Intellectual property business