Strict adherence to ESR requirements necessary, experts say

Companies across the UAE need to be up to date and comply with the UAE’s economic substance regulations (ESR) unless they want to incur heavy fines for their failure to comply, experts have said.

In a recent webinar organised by the Dubai Chamber, in collaboration with Al Tamimi & Company, experts highlighted the latest developments and provided guidance with respect to the economic substance regime and compliance requirements. The webinar, titled ‘Key Aspects of Economic Substance Regulations’, noted that the UAE has issued the Economic Substance Regulations in April 2019 and followed them with an updated guidance on relevant activities by the Ministry of Finance to help businesses to demonstrate economic presence in the UAE.

The UAE adopted new economic substance regulations in Cabinet Resolution No. 31 of 2019. These regulations provide that a company engaged in one of a number of specified sectors must have sufficient economic substance in the territory to access the territory's tax regime. The changes were in response to pressure from the EU on a number of territories, following recommendations from its EU Code of Conduct Group, and apply for financial years starting on or after January 1, 2019. The key activities identified by the European Commission Code of Conduct Group are: banking, insurance, fund management, financing and leasing, shipping, intellectual property, collective investment vehicles, and holding companies that generate income from any of these key activities.

Shiraz Khan, head of Taxation at Al Tamimi & Company, said that tax is a key revenue generation for many countries that don’t have an abundance of natural resources. “These countries generally rely on taxes to fund their public expenditure.”

rohma@khaleejtimes.com