Economic Substance Regulation

UAE introduced the Economic Substance Regulation (ESR) on 30 April 2019. The Economic Substance Regulation is required to demonstrate that the Companies with License in the Free Zone and Onshore also referred as “Licensee” are carrying out and managing the relevant activities in the UAE, their relevant Core Income Generating Activities (CIGAs) are being conducted within UAE and that the Licensee has adequate employees, premises and expenditure in the UAE.

The entities which are directly or indirectly owned by the UAE Government both federal and local are exempted from the Regulation.

All Free Zone and Onshore companies are required to submit the ESR Notification to their respective Regulatory Authorities on annual basis. Companies which falls under the Relevant Activities category are required to disclose additional requirements annually.

As per Economic Substance Regulation in the UAE Law, the above-mentioned activities are the “Relevant Activities”

  • Banking Business
  • Insurance Business
  • Investment Fund management Business
  • Lease - Finance Business
  • Headquarters Business
  • Shipping Business
  • Holding Company Business
  • Intellectual property Business (“IP")
  • Distribution and Service Centre Business

Penalties from AED 10,000 to AED 300,000 can be imposed by the Ministry of Finance for non-compliance with the Regulation.

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