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Revised UAE Economic Substance Regulations
In 2019, Economic Substance Regulations (ESR Regulations) were introduced in the UAE that place an obligation on certain UAE businesses carrying on one of the nine Relevant Activities to demonstrate that they have adequate operational and financial connections with the UAE (i.e. ‘substance’). 

In August 2020, the ESR Regulations were repealed and replaced to provide further clarification on the economic substance regime within the UAE, including the scope of Relevant Activities, and introduced guidance on notification and filing requirements (New Regulations).

Does this apply to my business?
The New Regulations apply to UAE businesses (whether established in or outside a UAE Free Zone), save for sole proprietorships, trusts and foundations, that carry on a Relevant Activity (Licensees), unless it falls under one of the exempt categories within the New Regulations (Exempted Licensees).  Exempted Licensees include, but are not limited to, investment funds, entities which are tax resident outside the UAE and branches of foreign companies where the relevant income is subject to tax outside of the UAE. 

ESR Notification requirements
Under the New Regulations, Licensees and Exempted Licensees carrying on a Relevant Activity must submit (or re-submit) an economic substance regulation notification (ESR Notification) to its Regulatory Authority within 6 months of its financial year end.
As the New Regulations became effective on 1 January 2019, the ESR Notification for the financial year commencing ending on 31 December 2019 must be filed with the UAE Ministry of Finance through its online portal by 31 December 2020. In addition, Exempted Licensees must provide satisfactory evidence of their status as an Exempted Licensee. 

Economic Substance Report
If a Licensee has generated income from carrying on a Relevant Activity, it is also required to file an Economic Substance Report (ESR Report) with its Regulatory Body within 12 months of its financial year end providing satisfactory evidence that it has met the Economic Substance Test.   Again, if a Licensee’s financial year commenced on 1 January 2019 the ESR Report must be filed by 31 December 2020.

Consequences of Non-Compliance
Failing to comply with the above requirements under the New Regulations may result in sanctions, such as a possible suspension and/or cancellation of your business licence, alongside potential financial penalties of up to AED 50,000.

What next?
If you are a Licensee or an Exempted Licensee, you will need to electronically file your ESR Notification for the financial year ended 31 December 2019 by the deadline of 31 December 2020.

As the ESR Report requires the disclosure of confidential financial data, it is recommended that you seek professional guidance from your accountant and/or tax advisors for this filing.

If you are unsure whether your business carries on a Relevant Activity, specific advice should be sought from legal professionals.