UAE Cancels Economic Substance Reporting
NEWS ALERT!
The United Arab Emirates (“UAE”) has officially abolished the requirement on resident companies to submit economic substance reports for the financial years starting from 01 January 2023 and after. This came through Cabinet Decision No. (98) of 2024, which limits the obligations of submitting such reports, originally set by Cabinet Decision No. (57) of 2020, to the financial years commencing from 01 January 2019 to the financial years ending on 31 December 2022.
The UAE applies Economic Substance Regulations (ESR), in accordance with Cabinet Decision No. (57) of 2020, to local companies that reside in UAE, including businesses in the free zones. These regulations are aimed at companies operating certain activities to demonstrate and maintain genuine “economic presence” in UAE relative to their activities. It ensures that UAE Ministry of Economics has oversight on the actual profits of UAE entities, and that these are consistent with their economic activity in the UAE. The activities subject to these requirements include, among others, banking, insurance, investment fund management, and lease-financing. These entities are required to provide the regulatory authorities with economic substance notifications, including preliminary information about the activities, and annual economic substance reports.
Cabinet Decision No. (98) of 2024 has also cancelled any administrative fines imposed on companies in violation of the Economic Substance Regulations for fiscal years that ends after 31 December 2022. If any of these fines are paid already, the governmental authorities must refund these fines and settle any disputes concerning their payment.