Economic Substance Regulation (ESR) In Dubai

The Economic Substance Regulations (ESR) in Dubai is a set of rules introduced by the UAE Ministry of Finance to combat tax evasion and ensure that businesses operating in the UAE have a genuine economic presence and substance. The ESR requires companies to demonstrate that they have a sufficient physical presence, employees, assets, and activities in the UAE that are relevant to the income they earn. Companies that fail to meet the ESR requirements may face penalties or other regulatory action. The regulations apply to a range of activities including holding companies, an intellectual property holding companies, and companies involved in the distribution of goods. Companies are required to submit an annual economic substance declaration to the relevant authority to demonstrate compliance with the regulations.

The ESR Regulations apply to businesses registered in the UAE, regardless of their legal form (e.g. company, partnership, etc.). UAE businesses are expected to use a substance-over-form approach when determining whether they conduct a Relevant Activity and, as a result, are subject to the ESR Regulations. This determination would require the UAE business to look beyond what is stated on their commercial license to the activities undertaken during a financial period. If a business is unsure whether it conducts a Relevant Activity, it should seek professional advice.