Crucial Updates to the UAE Economic Substance Requirements
Brief
The Cabinet of Ministers in the UAE issued Cabinet Resolution No. (98) of 2024 this October 2024, which brings important changes to different aspects of Cabinet Resolution No. (57) of 2020 which concerns the Economic Substance Requirements. The amendments made are designed to align with the implementation of the UAE’s federal corporate tax system affecting business and corporate profits.
Amendments to the ESR regulations in the UAE
Scope of ESR applicability
A new article added to Cabinet Resolution No. (57) of 2020 on the subject of ES Requirements, specifies that the ES Regulations will only apply to financial years commencing on January 1, 2019, and concluding on December 31, 2022.
As a result of this amendment, licensees and exempted licensees are no longer obligated to submit ES notifications and reports for the financial year ending after December 31, 2022.
Administrative penalties
If a Licensee has received an administrative penalty for non-compliance with the ESR in the UAE during any of the financial years commencing after 31st December 2022, the decision states such administrative penalties will be cancelled by the Federal Tax Authority (FTA) and any amounts collected will be refunded.
Implementation
To facilitate the implementation of this decision, the Ministry of Finance (MOF) will issue the necessary directives. Please keep in mind that the official English translation of the Cabinet Resolution has not yet been released.
Key Takeaways
ESR in the UAE will cease to apply to financial years commencing on or after January 1, 2023. Nonetheless, it will remain applicable for financial years starting on or after January 1, 2019, through December 31, 2022. The licensee or exempted licensee should consider the following with respect to the ESR compliance:
- Entities will not be required to comply with ESR obligations for any financial periods starting on or after January 1, 2023.
- Ensure compliance with ES Regulations for the relevant open period 2019 and 2022, and ensure all necessary filings (i.e., ES Notifications and ES Annual reports) are completed.
- Free Zone entities must ensure they maintain adequate substance in accordance with the UAE Federal Corporate Tax regulations.
- Assess eligibility for any penalty waivers or refunds in light of this amendment.
Excellence Can Help
We understand how challenging it can be to navigate ever-changing policies, which can often be confusing. In our fast-paced world, it is crucial to stay alert to these changes and ensure that we adhere to the regulations in place. Instead of focusing solely on growing your business, you may find yourself needing to stay alert and comprehend all these shifting regulations. That’s where we come in. We’re here to assist you with these complexities so you can concentrate on what matters most: the growth of your business.
Our team of professionals always stays on top of the latest policy updates, ensuring that your operations remain fully compliant with all the relevant laws and regulations. Our team consists of expert corporate tax advisors, auditors, accountants, and specialists who are dedicated to supporting your business’s growth. When you work with us, you can trust that your business will navigate regulatory changes smoothly, effectively, and efficiently, without getting bogged down in the details. Let us handle the intricacies, so you can continue to innovate and drive your success forward. Our services go beyond assistance with Economic Substance Regulations (ESR). We offer a wide range of solutions including, accounting, tax compliance services, auditing, and much more. We’re not just here for the short term; we’re committed to being a long-term partner in your success. Whatever challenges you face, we’re ready to help you navigate them effectively. With our proactive approach, you can confidently navigate any obstacles that arise and focus on building a sustainable future for your business.
Navigating ESR in the UAE can be particularly daunting, especially for businesses that engage in specific activities subject to these regulations. Our knowledgeable team can guide you through the nuances of ESR compliance, ensuring that your business meets all necessary requirements. By partnering with us, you can minimize risks associated with non-compliance and focus on expanding your operations in a rapidly evolving market. We can handle all the complexities while you drive your business forward.
