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.

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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

ESR enforcement agencies

Federal Tax Authority

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.


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

Comprehensive services

SORP offers comprehensive support for acquired companies and their shareholders: from licensing, maintaining Bank accounts to obtaining the status of a tax resident of the country

Individual approach

Your requirements are unique. That is why we treat every business individually to tailor the right services to achieve your priorities.

15 years of successful work

We have helped thousands of clients acquire, build and develop businesses in the UAE

Banking support

Assistance in choosing a bank that is suitable for your purposes, support with bank accounts opening and passing KYC procedures (know your customer).


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