UAE economic substance requirements (ESR) in 2023
From 1 January 2019, UAE introduced Economic Substance Regulations for local companies (including offshore and free zone entities) to comply with European Union tax governance principles.
The ESR requirements to don’t apply to multi-national Clients’ who use their UAE company as i) trading company or ii) as professional consulting services company or iii) as a corporate advisory services
- All local entities in UAE must meet ESRs if they are engaged in i) insurance, ii) banking, iii) fund management, iv) financing and leasing, v) headquarters, vi) shipping, vii) intellectual property, viii) distribution and service centre and ix) holding entity.
- Entities in scopes of economic substance requirements need to demonstrate any of the following: i) managed and directed in UAE, ii) core-income generating activities undertaken in UAE, iii) adequate number of suitably qualified full time employees in UAE, iv) adequate suppliers to conduct main businesses activities from UAE and v) adequate physical presence in UAE.
- Our Client’s business must demonstrate that it has satisfied the ESRs in respect to any relevant financial period and is required to file a declaration form on the Ministry of Finance portal, no later than 6 months after the last day of each relevant financial period.
- All entities with financial year-end 31 December 2020, and which fall within the scope of UAE Economic Substance Requirements (ESRs), must submit an ESR Notification to the Ministry of Finance within six months of the financial year-end.
- Should your entity fail to submit the ESR Notification in a timely manner, late submission penalties of Dhs20,000 may apply.
- Entities with financial year-end 31 December 2020, and which fall within the scope of ESR, must also submit a Substance Report within twelve months of the financial year end. This report confirms that the company complies with ESR requirements, including i) it is being managed and directed in the UAE ii) it has an adequate number of employees, expenditure, and physical assets in the UAE and iii) the core income-generating activity is being carried out in the UAE.
Problems and solutions
New legal requirement Simple, practical low-cost solution
UAE companies engaged in relevant activities must i) conduct income-generating activities in UAE, ii) rent physical office space in UAE, iii) hire staff in UAE and iv) have active directors in UAE.
Healy Consultants Group PLC will assist you to:
- Locate a small shared physical office space for a one-time fee of US$950. Rental fees are then paid by our Clients directly to the landlord.
- Recruit a local, low-salary admin employee for a one-time fee of US$4,950.
- Secure your local visa for a one-time fee of US$4,950.
From 1 January 2019, all UAE companies conducting relevant activities must complete an annual economic substance declaration within six months after the end of the fiscal year. The notification must be a Declaration Form on the Ministry of Finance portal.
The declaration includes i) business activities, ii) amount and type of gross income, iii) premises, iv) number of employees, including number of full-time employees and v) information on core income-generating activities.
- For a fee of US$2,150, Healy Consultants Group PLC will prepare and file this report for an active or a dormant company.
- The contents of this report will be agreed with our multinational Clients, to ensure their business goals continue to be met.
Failure to timely comply with the above may result in i) administrative penalties upto US$100,000 and/or ii) suspension or revocation of license iii) dissolution of the company.
- Together with our multinational Client, Healy Consultants Group PLC will timely accurately and completely discharge your UAE annual legal and accounting and tax obligations.
- If required, Healy Consultants Group PLC will assist you to prepare accurate and complete financial statements for your UAE business, for these accounting and tax fees.
Our multinational Client does not want to submit an annual ESR report to the UAE government.
We help our Client re-domicile the UAE entity to alternative reputable zero tax jurisdictions, including Singapore or Delaware.
Engage Healy Consultants Group PLC to i) advise how these changes affect our Client’s business and ii) assist our Clients’ companies fulfil all UAE ESR obligations, including notification filings.