The UAE introduced Economic Substance Regulations (ESR/Regulations) in 2019. The Regulations seek to cover all UAE entities who have obtained a trade license or permit from relevant authorities, including Free Zones and Financial Free Zones. The objective of the Regulations is to ensure that entities that are doing business in UAE meet the Economic Substance Test. ESR also mandates covered licensees to ascertain annual compliances in the form of Notifications and a detailed ESR report, which demonstrates that the licensee meets the substance test laid down in the regulations.
Given the various criteria that that an entity has to showcase (such as employee test, directed and managed test, core income generating activity test, etc.) to justify that it meets the adequate substance provision in UAE, proving and justifying adequate substance in UAE has its own set of challenges. Stringent penalties have been prescribed under the Regulations for non-compliance. The penalty for non-compliance could be in the range of AED 20,000 to AED 4,00,000, and may in some cases, lead to the cancellation of a license.
We at Nexdigm are geared to help you effectively handle your compliance and advisory needs. Through our team of qualified and experienced professionals, who monitor policy and regulatory changes on a regular basis, we can provide you with end-to-end support on ESR impact assessment, implementation, and compliance.