UAE has introduced the Economic Substance Regulation to align its business structuring with global standards. The imposition is made to prevent the Base Erosion and Profit/Income Shifting (BEPS). Owing to this, business companies need to ESR compliance in UAE by submitting the license to the authorities.
Don’t know if your business fall in the categories of companies which needs to comply with economic substance regulations? Keep reading the article to get a fair idea of everything:
What is Economic Substance?
The taxation and other commercial laws are modifying in the United Arab Emirates. The chief objective of modifying the business rules and regulations is to ensure compliance with global standards. In this way, the Economic Substance requires businesses to provide licenses.
Further, the Core Income Generating Activities (“CIGAs”) relevant to the business is conducted based on the license. It analysis that if the licensee has a proper premise, workforce, and maintains business expenses in the UAE.
List of businesses required to comply with ESR in UAE
It is imperative to note that not every business is required to comply with ESR. It is because it is obligatory for certain businesses in the UAE. The relevant activities that come under the Economic Substance Regulations in the UAE are as given:
- Banking
- Insurance
- Investment Fund Management
- Intellectual Property
- Holding Company
- Lease – Finance
- Headquarters Business
- Shipping
- Service and Distribution Center
Process of ESR compliance in UAE
Many business companies operating in the UAE are less aware of their responsibilities related to compliance. Lack of knowledge can lead to grave issues. Keeping this in view, the best VAT consultancy in Dubai based firms also offer the services of ESR compliance for their clients. You can also get assistance from such services providers to meet the regulatory requirements.
For general information, here are given the essential steps or processes required by every company to meet the regulations of ESR:
Notification
All companies having the licensees UAE should ensure to have notification from the competent authorities. It includes all businesses such as partnerships, branches, and free zone companies. The notification should be submitted before the 30th of June 2020. The requirements are as given below:
No matter if the gross income of the business activity is subjected to taxation in other countries besides the jurisdiction of the UAE. It is imperative to provide the detail of the financial year maintained by the company. It includes the date and time of the authorities. It helped the companies to notify the regulating authorities.
Reporting
Reporting is an important task that every company under the ESR should accomplish for a must. Besides complying with the requirements of notification, the companies involved in a Relevant Activity should report to the authorities in UAE. The reporting requirements include the following:
· the location where the business activity is conducted
· the amount and types of expenses required for operating Relevant Activity
· Detail about the employees in numbers and working hours
· Information about the Core Income/Profit Generating Activities (CIGAs)
· Documented information about the outsourced activities
· Declaration paper that a business licensed satisfies the Economic Substance Test in UAE
Economic Substance Test
Last but not least, the companies falling under the Economic Substance Regulations should qualify a test to meet the criterion of ESR compliance in UAE. It includes the following requirements:
· Whether or not the UAE licensee is conducted a CIGA in UAE
· If the company manages its business activities within the UAE
· If the company has a considerable number of employees for operations
· If the company needs a sufficient amount for operating a business in the UAE and if it has sufficient expenses to outsource a CIGA to other companies in UAE
· If the company has proper physical setup for serving the industry and meeting expenses of the third party
Companies can find detailed information about CIGA in the UAE Cabinet Resolution (No 31) and Article 5. The detail is provided with respect to every business Relevant Activity.
Regulatory Authority
The in-charge authorities for the ESR is known as the Regulatory Authority. The primary responsibilities of the authority include the collection of notification and reporting. Moreover, the authorities examine the documents submitted by the companies to assess authenticity. The requirements criterion for the ESR test is validated by the Ministry of Finance, Security & Commodities Authority, different authorities in Free Zones and UAE Central Bank.
Feel Overwhelmed? Hire ESR experts in Dubai!
Summing up, the individuals need to perform CIGA for holding a company within the UAE. The chief requirements of the Economic Substance Test in UAE is to ensure that holding companies are generating sufficient revenue by getting involved in Relevant Activities.
However, ESR compliance in UAE can be tricky without proper awareness of the requirements. The imposition of VAT has further added to the regulation of complying requirements. So, companies should acquire the best VAT consultancy in Dubai, you can go through the process successfully! In this way, you can meet the ESR requirements case by case without any difficulty.
Remember! You must provide evidence of top management and employees detail to the authorities, make sure that a proper organizational structure is deployed within the company. Don’t forget to maintain the proper record of business transactions and tax compliance for meeting the requirements of ESR.
