Eliminate the risk of losing very significant tax benefits by achieving compliance with the Economic Substance Regulation (ESR). It requires conforming to international standards implemented by the OECD, banking regulations, and UAE law.
Banks have tightened their policies and countries now permit fewer tax planning schemes. This is the reality of modern day constraints on business. One effect is to oblige business owners to demonstrate that they fulfil the requirements of economic presence and that the center of business management and control is within the country. SORP Group will help you avoid financial, legal and tax risks by providing a comprehensive solution.
International business activities that require ESR compliance in the UAE
Services and distribution
Sale of goods, warehouse management, consulting or administrative services and
service centers.
Financial institutions
Banks, credit institutions or insurance activities, management of investment funds or securities.
Holding structures
Any business structures designed for effective management
and optimization of international business fall under ESR.
Overseas business operations
Conducting any global projects: establishing, managing, supporting, financing a business from the UAE.
Intellectual property
Registration and management of intellectual property (IP): patents, trademarks, including copyright.
Logistics activities
Transporting goods by land and sea, as well as forwarding, support and dispatch services.
Companies subject to the ESR conditions must pass a special test for compliance with the requirements of economic presence in the UAE. That involves submitting an annual report to the regulatory body within 12 months following the end of the previous financial period. Usually, regulators are empowered to independently establish the form such a report must take and the procedure for its submission, depending on the type of activity and place where the business is registered.
Steps to be taken in order to comply with the ESR requirements:
Physical office
Confirm business accommodation in the UAE through leasing or purchasing an office, commercial premises and/or warehouse with a mandatory address registered at the place of business
Staff hired
Ensure that a sufficient number of full time staff members are on the books. The size of the businesses determines
how many people should be employed by the company
Contact information
A local phone number, a website with a UAE domain (.ae) that is hosted within the country, confirmed postal address, actively sending or receiving business correspondence
Local decision making center
Proof that management and control of the business is centered in the UAE, as well as keeping minutes of regular and occasional meetings of shareholders
that take place in the UAE
Corporate reporting
Ensuring continued ESR compliance requires companies to maintain high bookkeeping and accounting standards and file annual financial reports for UAE activities, depending on requirements
Tax residency status
Obtain a tax residency certificate
with quarterly filing of tax returns to country's fiscal authorities in order to confirm the requirements of the UAE regulators
SORP Group has the government licenses as well as its own resources and tools that will help your business comply with the ESR requirements exactly in accordance with UAE legislation - without incurring large financial costs. SORP also provides a guarantee that there are no legal or tax risks.
ESR regulations, that a foreign investor needs to know:
By understanding the nuances of the UAE business environment and global trends in confirming economic presence, you can avoid the risks of recognizing your activity as illegitimate and protect yourself from the consequences of sanctions from state and fiscal authorities.
Controlled licensee
This is a legal entity (registered in the UAE or abroad) carrying out the relevant controlled activities
Controlled activities
CIGA (Controlled Income Generated Activities), activities for which the licensee makes a profit from the UAE
ESR Compliance
A company conducting controlled activities is obliged to confirm the presence of a Control and Monitoring Center in the UAE
Document management
Any company operating in the UAE must keep accounting documents for 6 years from the end of the financial year
Authorized to verify compliance with the requirements of Economic Substance in the UAE, to impose restrictions on activities, to check whether the activities of the company are controlled.
Ministry of Finance
All licensees, regardless of whether their activities fall under controlled or not, are required to notify the UAE Ministry of Finance by completing an ESR Compliance Report.
Abu Dhabi Global Market
Has a separate financial regulator FSRA, which oversees any CIGA activity. All licensees registered with ADGM are required to notify the regulator for compliance with or exemption from ESR.
Dubai International Financial Center
Has a separate financial regulator, DFSA, which oversees any CIGA activity. All licensees registered with the DIFC must notify the regulator for compliance with or exemption from ESR.
Dubai Multi Commodities Center
The activities of all licensees are regulated by the administration of the FEZ DMCC. All companies registered in this zone are required to submit a notification to the regulator for compliance with or exemption from ESR confirmation.
Ras Al Khaima ICC and Free Economic Zone
In the case of the International Corporate Center (ICC), licensees must submit notices through the registration agent. Free Zone RAK (RAKEZ) companies are required to submit an ESR report directly to the regulator.
This applies to any activity.
Solutions by SORP Group that will help your business meet the UAE’s ESR requirements
Nominee services
Provision of director with limited rights who is a UAE resident, so
as to confirm the presence of the executive body in the country
Outsourcing services
Administrative, secretarial, legal, PRO support, IT services. SORP
can also provide qualified staff
on an outsourced basis
Business address
Offices for rent in SORP Business Center specifically for passing KYC procedures or confirming economic presence in the UAE
Tax residency status
Assistance in obtaining a tax domicile certificate as proof of the compliance with the requirements of affiliation to the UAE
Accounting services
Preparation of audit reports
and support in matters of filing tax returns, and assistance with tax registration in the UAE
Business re-domiciliation
Legal support for changing the jurisdiction of registration of a foreign company to the UAE, a country with a unique taxes
Branches of foreign organizations that carry out controlled activities and receive the corresponding income also fall under the regulation, with the exception of cases when income is taxed outside the UAE. In addition, the parent company or head office registered in the Emirates is also subject to ESR regulations and must notify the regulator of the economic activity for itself and its branches in one report.