UAE Revamps Economic Substance Regulations

Major Relief for Businesses as ESR Requirements Scrapped for Fiscal Years Starting 2023

The United Arab Emirates government will introduce wide-ranging amendments to its Economic Substance Regulations through a new cabinet decision number 98 of 2024. The Cabinet Decision No 98 of 2024 was published in the Official Gazette on September 16, 2024, bringing ease to business operating in this region.

What's Changed?

According to the revised regulations, ESR can only be used for fiscal years beginning on January 1, 2019, and ending on December 31, 2022. Accordingly, companies whose fiscal years begin on or after January 1, 2023, are exempt from filing a UAE economic substance notification and report.

Implications for Your Business 

If your business was previously subject to ESR requirements, you can breathe a sigh of relief. The following are the main conclusions: 

• Fiscal years ending after December 31, 2022, will no longer be subject to ESR compliance.
• After December 31, 2022, non-compliance fines will be waived.
• Refunds will be issued for fines paid related to fiscal years ending after December 31, 2022.

Economic Substance (ES) Regulation Periods

Corporate Tax Law Considerations

Even though ESR requirements have been removed, Free Zone businesses aiming for Qualifying Free Zone Person (QFZP) status under UAE corporate tax law must still show they have enough presence or "substance" in the UAE. They must confirm this by including it in their corporate tax return, which they submit through the Federal Tax Authority's EmaraTax portal.

Next Steps

To navigate these changes and ensure compliance with UAE tax regulations, consult with our Reyson Badger’s expert team. We'll guide you through:

• ESR transition and refund processes
• Corporate tax law implications
• QFZP requirements and substance demonstration

Don't miss this opportunity to optimize your business operations. Reach out to us today.