Economic Substance Regulation

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Economic Substance Regulation

Due to concerns raised by the European Commission, the United Arab Emirates (UAE) was included in the European Union’s roster of non-cooperative tax jurisdictions. Consequently, the UAE introduced the Economic Substance Regulations (ESR) through Cabinet Decision No. 57 of 2020, which took effect on January 1, 2019. The ESR mandates that UAE entities (encompassing offshore firms and local and foreign company branches) engaged in any of the Relevant Activities must maintain specific economic substance within the UAE for each such activity. Failure to adhere to annual filing requirements may result in penalties for non-compliance. This document outlines the obligations imposed by the ESR and offers guidance on notification and reporting procedures, along with addressing some of the practical hurdles associated with compliance.

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