Economic Substance Regulations
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Globally, Economic Substance Regulations (ESR) combat tax avoidance and evasion. As an OECD member, the UAE adheres to global standards, reviewed by the OECD. The UAE's economic substance framework aims to regulate tax liabilities, applying to all licensed companies to curb evasion. This regulation addresses advantages from low-tax systems, impacting businesses onshore and offshore alike. ESR regulations extend to all UAE licensees, spanning mainland, free zones, and offshore entities, as well as individuals, involved in designated "Relevant Activities" (RA). These activities cover a broad spectrum, including banking, investment fund management, insurance, shipping, distribution and service center operations, lease financing, headquarters operations, holding company activities, and intellectual property management. Compliance with these regulations is obligatory, ensuring transparency and accountability across diverse sectors of the economy.
DIFC Economic Substance Regulations Notification Process
Every DIFC-licensed company engaged in Relevant Activities (RA) is mandated to submit its Economic Substance Regulations… notification to the DIFC Registrar of Companies within the stipulated timeframe. This notification serves as a self-declaration wherein companies inform the DIFC authority about the execution of relevant activities. The ESR notification necessitates companies to disclose key information
Confirmation of engaging in relevant activities
Declaration of whether the income from these activities is subject to taxation outside the UAE.
Disclosure of the financial year-end date
Reporting Economic Substance for DIFC Entities
DIFC companies engaged in relevant activities within the UAE must annually submit an Economic Substance Report to the DIFC Registrar of Companies. This report is due within 12 months of the financial year-end and should encompass comprehensive information on economic activity, income, expenses, and assets. Additionally, companies are required to declare the fulfilment of the economic substance test in the report.
Consequences of Non-Submission of Notification to DIFC Registrar
Failure of UAE companies to submit the Economic Substance Regulations (ESR) notification may result in fines starting from AED 20,000. Furthermore, DIFC entities are subject to penalties up to USD 25,000, in accordance with Article 31(2) of the Operating Law, DIFC Law No. 7 of 2018, for non-compliance with Registrar requirements.
Consequences of Submitting Incomplete or Inaccurate Information
Under the UAE Economic Substance Regulations, mainland, free zone, offshore, and DIFC entities may face fines of up to AED 50,000 for furnishing false or incomplete details in the Economic Substance Regulations (ESR) notification.
Reporting Economic Substance for DIFC Entities
Consequences of Non-Submission of Notification to DIFC Registrar
Consequences of Submitting Incomplete or Inaccurate Information
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Thorough Examination and Discrepancy Analysis
Thorough Examination and Discrepancy Analysis
If your business falls under the purview of the Amended Regulations, we will assess and determine whether it meets the Economic Substance Test under these regulations. Additionally, we will pinpoint any areas of non-compliance if the criteria set forth in the Amended Regulations are not satisfied.
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Corporate Measures to Fulfil the Economic Substance Test
Corporate Measures to Fulfil the Economic Substance Test
We will recommend and implement corrective or preventive corporate actions to ensure that your company meets the requirements stipulated by the Economic Substance Test.
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Support for Regulatory Compliance
Support for Regulatory Compliance
We will ascertain whether your business falls within the ambit of the Amended Regulations by evaluating whether the company, as a Licensee, engages in Relevant Activity during the Reportable Period. We will then outline the compliance requirements for your company. Assistance in the Submission or Resubmission of Notification and Substance Return to the Ministry of Finance. We also provide ongoing review services to maintain the company's compliance with the Amended Regulations.
Why MS
for Economic Substance Regulations Filings Services in DIFC
Engaging MS for Economic Substance Regulation (ESR) Services in DIFC enables you to align your business with international standards. Adhering to ESR is a critical requirement for conducting business in DIFC, and non-compliance can lead to substantial repercussions. Our expertise is poised to simplify and fortify the compliance process. Our services not only pave the way for success but also position themselves as an invaluable asset to your business in the dynamic and evolving DIFC market.
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