The Organisation for Economic Co-operation and Development (OECD) has set guidelines to combat tax avoidance through tax base erosion and profit shifting. As a member of the OECD inclusive framework, UAE is committed to ensure that the UAE’s legal and commercial framework is in line with global standards. As a part of this commitment and in response to an assessment of the UAE’s tax framework by the European Union Code of Conduct Group on Business Taxation, the UAE issued Economic Substance Regulations (“ESR”) in April 2019.
These regulations are recently amended by Cabinet of Ministers Resolution No. (57) of 2020 on 10 August 2020, and updated Guidance was issued on 19 August 2020 (Ministerial Decision No. (100) of 2020.
ESR is applicable to all licensees carrying out a ‘Relevant Activity’ in the UAE. This includes licensees in Free Zones, Financial Free Zones and Offshore Free Zones. The regulations apply to financial year commencing from 1 January 2019.
Licensees within the scope of ESR are required to submit notification and report confirming whether they undertake any Relevant Activity and meet the ESR tests.
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