On 30 April 2019, the UAE introduced Economic Substance Regulations (Cabinet of Ministers Resolution No. 31 of 2019, the “ESR”).
The ESR was introduced as part of the UAE’s commitment as a member of the OECD Inclusive Framework, and in response to an assessment of the UAE’s tax framework by the European Union (“EU”) Code of Conduct Group on Business Taxation.
The ESR applies in the ADGM and requires ADGM Licensed Persons that carry on one or more “Relevant Activities” to have economic substance in the UAE in relation to these activities, and to comply with notification and return filing obligations.
United Arab Emirates Economic Substance Regime
The full Federal Economic Substance Regime consists of:
- Cabinet of Ministers Resolution No. 31 of 2019 concerning Economic Substance Regulations, as amended by Cabinet Resolution No. 7 of 2020 (Regulations),
- Ministerial Decision No. 215 of 2019 (Guidance),
- Cabinet Decision No. 58/2019 on the Determination of Regulatory Competencies, and
- Cabinet Resolution No. 7 of 2020 amending some provisions of Cabinet Resolution No. 31 of 2019 concerning economic substance regulations.
Application in ADGM
In ADGM, ESR applies to Licensed Persons, whether they are companies, partnerships, foundations or branches of foreign companies or partnerships, that:
- Are located in ADGM,
- Earn income from one or more relevant activities, and
- Whose financial year commences on or after 1 January 2019.
In ADGM, ESR exempts ADGM Licensed Persons who are directly or indirectly owned 51% or more by the UAE Government. This includes the Federal Government, the Government of any Emirate of the UAE or any governmental authority or body.
However, exempt ADGM Licensed Persons must still file an economic substance annual notification to the Registration Authority.
Administration in ADGM
The ADGM Registration Authority is the Regulatory Authority administering ESR in the ADGM.
This section of the website contains information about ESR, as well as forms, filing guidance and useful links and resources to assist ADGM Licensed Persons that are in scope of ESR to understand and comply with its requirements.
ESR Contact Information
For ESR enquiries email: email@example.com
ESR requires ADGM Licensed Persons that carry on one or more “Relevant Activities” to have economic substance in the UAE in relation to those activities.
Relevant Activities are defined in the ESR as:
- Banking business,
- Insurance business,
- Investment Fund Management business,
- Lease-Finance business,
- Headquarter business,
- Shipping business,
- Holding Company business,
- Intellectual Property business, and
- Distribution and Service Centre business.
All ADGM Licensed Persons are expected to assess and determine whether they conduct Relevant Activity(s) and therefore whether they are within scope of ESR. The approach to making such a determination should consider ‘substance over form’, and not just the activities stated on a firm’s ADGM Commercial License / Financial Services Permission.
Guidance on Relevant Activities
The UAE Ministry of Finance has published ‘The UAE Economic Substance Regulations Relevant Activities Guide’ (the “Guide”) as useful guidance on the meaning of each Relevant Activity.
ADGM has issued the following Circulars in relation to ESR.
All ADGM Licensed Persons conducting Relevant Activities are required to notify the Registration Authority of the following annually (regardless of being exempt or not earning income), i.e. the “Annual Notification Requirement”:
- Whether or not the Licensee is carrying on a Relevant Activity.
- If the Licensee is carrying on a Relevant Activity, whether or not all or any part of the Licensee’s gross income in relation to the Relevant Activity is subject to tax in a jurisdiction outside the UAE.
- The date of the end of the Licensee’s Financial Year (Accounting Reference Period).
For ADGM Licensed Persons with a 31 December 2019 Financial Year (Accounting Reference Date), the Annual Notification is due by 30 June 2020.
Please refer to the Forms and Filing Guides accordion below for the Annual Notification Form and Filing Guide.
The Economic Substance Annual Notification must be completed, signed and emailed to: firstname.lastname@example.org
ADGM Licensed Persons that are not exempt and undertake a Relevant Activity from which they earn income during a relevant Financial Year, are required to:
- Meet economic substance requirements.
- File an Economic Substance Return.
The Economic Substance Return is due within 12 months of the end of the Licensees’ Financial Year (Accounting Reference Period).
Therefore the first Economic Substance Returns will be due by 31 December 2020.
Note: if a Licensee is exempt or carries on a Relevant Activity but does NOT derive income from that activity, it does NOT need to file an Economic Substance Return.
Please note that the economic substance related information provided in this section of the website is subject to change, through Federal legislation or guidance, and should not be relied on without seeking independent advice and confirming the currency/validity of the information.
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