Economic Substance confirmation in the UAE
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.
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
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.
ESR enforcement agencies
Federal Tax Authority
Ministry of Finance
Abu Dhabi Global Market
Dubai International Financial Center
Dubai Multi Commodities Center
Ras Al Khaima ICC and Free Economic Zone
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
Risks of non-compliance with the requirements for confirming economic presence in the UAE
Difficulty in opening a bank account
Impossible to pass KYC procedures required to open a bank account and confirm that business operations are active in the UAE
Financial penalties and impact on trading
Failure to comply with the ESR can result in severe penalties and sanctions such as the revocation of trade licenses or permits
Risk of losing tax incentives
Spontaneous exchange of information with foreign tax authorities, application of normal tax rates to all income, also from abroad, interest charged
Transactions considered as being fictitious
This issue depends on recognition and acceptance (or not) of tax optimization schemes or transfer pricing
Loss of the company’s tax residency status
The company will be taxed based on the locations where it has earned revenues
Loss of business confidentiality
Disclosure occurs as per the CRS regulation - tax data is sent to the country of residence
SORP is your reliable partner for the long haul - helping your business succeed in the UAE
Confirm that your business is managed from the UAE
SORP experts keep up to date with global trends and constantly monitor changing requirements of local legislation and international standards.
Take the first step today on the path to creating a successful business in the Emirates!