With the Economic Substance Regulation, the United Arab Emirates (UAE) has brought its corporate framework into line with international norms. The imposition is undertaken in order to stop the erosion of the base and the shifting of profits and incomes. As a result of this, commercial enterprises are required to demonstrate ESR compliance in UAE by submitting their licensing applications to the relevant authorities.

Are you unsure as to whether or not your company falls within the economic substance rules' scope of application? Continue reading this article in order to have a comprehensive understanding of ESR Compliance Services in the UAE.

What is meant by "economic substance"?

The UAE is through a period of change in its taxes and other economic legislation. Compliance with international norms is the primary motivation behind the recent round of regulatory reforms in the corporate world. Consequently, the Economic Substance mandates that companies provide licences.

In addition, the "Core Income Generating Activities" (also known as "CIGAs") that are essential to the company are carried out in accordance with the licence. It conducts an investigation to determine whether or not the licensee has an appropriate location, employees, and keeps their company costs up to date in the UAE.

Which companies in the UAE are mandated to comply with ESR?

It is important to emphasise that ESR compliance is not obligatory of all businesses. The reason for this is because certain types of enterprises in the UAE are required to comply with this regulation. The following is a list of the types of activities that fall within the purview of the ESR in the UAE:

• Banking and Insurance
• Investment and Fund Management
• Holding Company
• Lease financing
• Intellectual Property
• Shipping
• Service and Distributing Center and many more

What is the procedure for ESR compliance services in the UAE?

There is a significant lack of awareness on the part of many of the UAE's commercial enterprises about their duties in regard to compliance. A lack of understanding may lead to some very serious problems. Keeping this fact in mind, the most reputable VAT consultant businesses in Dubai also provide their customers with ESR compliance services. You may also get help from these types of service providers in order to fulfil the regulatory criteria.

For the purpose of providing general information, the following are the fundamental stages or processes that are necessary of every organisation in order for them to comply with the requirements of ESR:

1. Notification

Each and every business in the UAE that has licences needs to make certain that they have received notice from the appropriate authorities. It encompasses all types of enterprises, including partnerships, branches, and corporations operating in free zones. It is imperative that the notice be sent in no later than the 30th June 20 .

It makes no difference whether the gross revenue from the economic activity is taxed in other countries in addition to the authority of the UAE; taxes must be paid on all income. It is essential to offer specific information on the fiscal year that the firm keeps records for. It provides the date as well as the time when the authorities made their decision. It was helpful for the firms to alert the authorities that regulate them.

2. Reporting

Reporting is an essential activity that any organisation that falls under the ESR is required to do in a timely manner. In addition to meeting the criteria for notification, businesses engaging in a Related Activity are required to disclose their activities to the relevant authorities in the UAE. The following items are included in the criteria for reporting:

• The physical location at which the commercial transaction takes place.
• The quantity of costs, as well as the categories of expenses, that are necessary for running Relevant Activity.
• Specific information on the staff members, including their numbers and work schedules.
• Information regarding the primary activities that generate revenue or profit (CIGA)
• Information that has been documented on the activities that were outsourced.
• Declaration document indicating that a firm licenced in the UAE passes the requirements of the ES Test

3. Economic Substance Test

Finally, in order to be compliant with ESR in UAE, organisations that are subject to them must pass a qualification exam. It contains all of the criteria listed below:

• Regardless of whether the UAE licensee has participated in a CIGA in the UAE.
• If the corporation is responsible for the management of its commercial operations inside the UAE
• If the firm relies on a sizable number of workers to carry out its daily activities
• If the firm requires a sizable sum to run its UAE operations and if it incurs enough costs to justify contracting out a CIGA to those other UAE businesses, then it may want to consider doing so.
• If the organisation has the appropriate physical setup for catering to the sector and taking care of the costs incurred by the third party

4. Authority in Charge of Regulation

The Regulatory Authority is the name given to the group of responsible authorities for the ESR. The principal duties of the authority are the gathering of notifications and the production of reports. In addition, the authorities conduct a verification process on the legitimacy of the papers that are provided by the firms. Validation of the required criteria for the ESR test is carried out by the UAE apex Central Bank in addition to the Ministry of Finance, Security & Commodities Authority, and other agencies in Free Zones.

Also Read : Filing ESR Assessment in the UAE- All You Need to Know

Struggling to Keep It Together? Hire ESR in Dubai!

In summary, owning a corporation in the UAE requires CIGA. To meet the primary criteria of the Economic Substance Test in UAE, holding corporations must engage in enough related activities to generate adequate income.

Without sufficient knowledge, UAE ESR compliance might be challenging. VAT has increased compliance regulations. So, organisations need to have the finest VAT consulting in Dubai to succeed. Thus, you can easily fulfil ESR case-by-case needs.

Remember! You must disclose top management and personnel details to authorities and provide a solid organisational framework. Maintain company records and tax compliance to fulfil ESR standards.

To help you comply with this regulation, Fortius Consulting Services can categorise your company, check the necessary substance criteria, and offer outsourced business consulting and cfo services to create substance. Further, we can also help you review your company's structure and give you advice on the best way to move forward. Please get in touch with us at your earliest convenience if you have any inquiries or if you want any further information on the services that we provide.