Impact of Economic Substance Regulations on the Businesses in UAE

As long as the time runs for doing ESR Compliances it's knocking at the doorsteps of businesses, it might be prudent for the companies in UAE to start out getting ESR Impact Assessment. To measure the impact a brief study on ESR is an inevitable part. UAE Economic Substance Regulations (ESR) was introduced in response to the requirements of OECD. This regulation was implemented to scale back illegal tax practises and wrong doings within the businesses. To put a stop to wrong tax practices followed in international business and can make sure that the right amount of taxes is paid by the businesses within the respective countries where the last beneficial owner is predicated. These rules apply to companies who have engaged in core income-generating activities (CIGA) like banking, insurance, fund management, financing and leasing, headquarter companies, shipping business, investment holding, IP activities and distribution and repair centre. The scope of the new provisions includes all companies completing relevant activities apart from any commercial company owned directly or indirectly by the UAE Government or any subordinate government authority.

To meet the economic substance requirement, companies will generally get to satisfy the subsequent three tests:

1. The corporate should be directed and managed within the UAE for the precise activity.

2. The company’s CIGA should be performed within the UAE. 

3. The corporate should have an adequate level of qualified employees, premises and annual operating expenditures. 

Major Impacts of ESR on Businesses

The UAE government has implemented ESR Regulations whose deadlines are coming very near. The Economic Substance Regulations will have great impacts on the companies within the United Arab Emirates. The impact will include the following: 

1. Conducting the Core Income- Generating Activity (“CIGA”) within the UAE.

2. Being directed and managed within the UAE in reference to that activity.

3. Having an adequate number of full-time employees in reference to that activity who are physically present within the UAE or an adequate level of expenditure on outsourcing to 3rd party service providers, whose activities, employees, expenditure and premises are within the UAE, and these activities, employees, expenditures and premises are adequate for completing the relevant activity outsourced. 

4. Having an adequate operating expenditure incurred by it within the UAE, or an adequate level of expenditure on outsourcing to 3rd party service providers whose activities, employees, expenditure and premises are within the UAE 

5. Having adequate physical assets within the UAE or adequate level of expenditure on outsourcing to 3rd party service providers within the UAE, for the activities of the license.

Benefits for Implementing ESR on Business

Providing accurate reports to the concerned authority plays a really important part consistent with the Economic Substance Regulations. Each company is obligated to supply annual or bi-annual reports depending upon the business activities being performed within the company. Each company must prepare a notification stating if the ‘Relevant Activities’ are being performed within the company or not. The above-mentioned notification must be submitted by the 30th of June. If the solution is “Yes,” then the yearly return has to be submitted to the authority before 31st December.

If the corporate repeatedly doesn't suit the Economic Substance Regulations or continuously fails in providing the relevant information or meeting any criteria as mentioned within the regulation, then the entity’s license might not be renewed, or in some cases, the corporate may need to undergo the Liquidation of the corporate.

The implementation of ESR will help the businesses to reduce illegal business practices and pave way for the businesses which are better and do the business the proper way. This may help generate healthy competition between the businesses, which in turn, help increase profitability. 

How CDA helps you? 

CDA offers specialised accounting services that meet the financial needs of any business in the international market. We safeguard the company’s interests by complying with the Economic substance Regulations and are steadfast to keep the uppermost level of professional canons and excellence. We offer the following services to comply with ESR:

We conduct a systematic study on the business activities and provide guidance in complying with ESR

• Compliance tests and economic substances tests are done to check the adherence with the regulations
• Provide supervision on the contractual agreements whether ESR laws are included or not
• Submit ESR reports to the regulatory authority on time

ESR will affect the businesses in the UAE in a positive manner and will have a high impact on the economy of the country. However, business management needs to be more mindful and give accurate and relevant information about the company at the right time.

Also read, Importance of Financial Statements for Business

Our other services are Business Services, Accounting & Bookkeeping Services, Auditing Services, Tax & VAT Filing Services and Due diligence Services to the business tycoons in Dubai. If you need any of our services or want to know more about our services, do contact us. Our experts will give you a one-hour free consultation on your queries.