Economic Substance Regulations

Economic Substance Regulations Explained in Detail

The Economic Substance Regulations (ESR) in the United Arab Emirates (UAE) are a set of rules that were introduced in 2019 to ensure that companies operating in the UAE have economic substance in the country. The ESR apply to a range of companies that carry out certain activities in the UAE, including companies that are registered in one of the UAE’s free zones, as well as companies that are licensed by the UAE Ministry of Economy.

Under the ESR, companies that carry out relevant activities in the UAE must meet certain requirements to demonstrate that they have sufficient economic substance in the country. Relevant activities include:

  1. Banking: This includes activities such as accepting deposits and providing loans, as well as other activities related to the provision of financial services.
  2. Insurance: This includes activities such as underwriting and reinsurance, as well as other activities related to the provision of insurance services.
  3. Investment fund management: This includes activities such as managing investment funds, as well as other activities related to the management of financial assets.
  4. Lease-finance: This includes activities such as providing leases or financing for the acquisition of assets, as well as other activities related to the provision of lease-finance services.
  5. Headquarters: This includes activities such as providing management or administrative services to group companies, as well as other activities related to the operation of a headquarters business.
  6. Holding company: This includes activities such as holding and managing investments, as well as other activities related to the operation of a holding company.
  7. Shipping: This includes activities such as the operation of ships, as well as other activities related to the shipping industry.
  8. Intellectual property: This includes activities such as the development, ownership, or exploitation of intellectual property, as well as other activities related to the use of intellectual property.

To meet the requirements of the ESR, companies must demonstrate that they have a physical presence in the UAE and are conducting genuine business activities in the country. This may include having employees, equipment, and business premises in the UAE, as well as maintaining records and accounts that accurately reflect the company’s business activities.

It is important to note that the ESR apply to companies that carry out relevant activities in the UAE, regardless of where they are incorporated or where their parent company is located. Companies that fail to comply with the ESR may be subject to fines and other penalties.