This article was updated on July 10th, 2023
This article was updated on July 10th, 2023
This article has been researched and written by Steven Ireland and the team at Creation Business Consultants and has not used AI in generating this article.
In this era of modern, fast-paced business so many rides on a company’s reputation. The way financial institutions, customers, suppliers, and other market players view the credibility of your business can affect your bottom line and growth potential.
Startups, entrepreneurs, and company owners need to be aware that credibility and substance are vital to building and sustaining a business.
What does Economic Substance mean? Why is it more important than ever for UAE companies? How much substance is enough for your Dubai company? We take a closer look at ways to ensure your company and bank account stay on the right side of the newly publicised substance tests and examine the issue of Economic Substance.
The “EU blacklist” refers to a list of non-cooperative jurisdictions for tax purpose. Jurisdictions are added to the “tax haven blacklist” if they are deemed to have shortfalls in their tax rules that could favour tax evasion. They are removed from the blacklist if they commit to reforms.
Consequently, EU countries can choose to apply certain defensive measures against the countries on the EU blacklist.
In order to prove that they comply with the ESR standards, entities must annually notify the UAE authorities and pass a substantial economic substance test. The component test consists of:
In conclusion, the UAE ESR requires organisations carrying out specific regulated activities in the nation to have sufficient Economic Substance in the UAE. Entities are required to comply with the substance requirements, submit a substantive Economic Substance test and annual notice to the UAE authorities.
The amount of economic substance required by a UAE entity will vary depending on a number of factors, including the nature of the business activities which the company is involved in and the countries (jurisdictions) it transacts with.
Substance needs to be seriously addressed in order to avoid a high(er) tax burden on your business and to prevent serious tax-disputes arising with your domestic tax authority.
According to the Cabinet of Ministers Resolution No. 31 of 2019, the Economic Substance Regulations (ESR) were adopted by the UAE and went into force on April 30, 2019. On August 19, 2020, the revised guidance was released (Ministerial Decision No. 100 of 2020). The ESR in the UAE requires organisations to carry out specific regulated actions in order to prove that their activities have a sufficient economic foundation in the UAE.
Economic substance is an important issue for businesses and one that shows no signs of losing momentum. If you are concerned about the substance levels of your current UAE (GCC) entity or would like some corporate secretarial advice for a new Free Zone, ADGM, DIFC or mainland UAE company, contact us for a free consultation email [email protected] call +971 4 878 6240.
This Article was researched and written on May 14th, 2019 by Steven Ireland.
This Article was reviewed and updated on Oct 13th, 2023 by Scott Cairns.