Economic Substance Regulations and their lifecycle for businesses in the UAE

The United Arab Emirates (UAE) introduced Economic Substance Regulations (ESR) in 2019. These regulations required UAE entities and branches conducting certain geographically mobile activities to maintain adequate substance in the country. The purpose of the ESR is to prevent businesses, typically multinational corporations, from artificially shifting profits to jurisdictions that impose little or no income tax without having substantial activities in that jurisdiction to take advantage of their tax laws.

Given the serious consequences of non-compliance with the ESR, businesses should ensure they stay on top of their compliance obligations. It is critical to ensure there is adequate governance in place to avoid paying hefty penalties (of up to AED 400,000) and suspension of trade licenses among others.

Based on our experience advising clients on ESR matters, we have created a document to provide businesses with the guidance needed on the ESR lifecycle, as well as the considerations to maintain ESR best practices.