United Arab Emirates: Restriction on applicability of Economic Substance Regulations

16 Oct 2024    1 minute read

In brief

On 2 October 2024, the United Arab Emirates (UAE) Government made significant amendments to the UAE Economic Substance Regulations (ESR) through Cabinet Decision No. 98 of 2024.

The impact of these changes is to apply the Economic Substance Regulations to accounting periods ending before or on 31 December 2022.

Businesses with accounting periods starting on or after 1 January 2023 are no longer required to file a UAE economic substance notification and/or report.

Contents

Published in the Official Gazette on 16 September 2024, Cabinet Decision No. 98 of 2024 amends Cabinet Resolution No. 57 of 2020 concerning Economic Substance Requirements, by adding an Article (2) B to limit its overall application to fiscal years between 1 January 2019 to 31 December 2022.

The removal of the need to comply with the economic substance regulations is welcomed given that the UAE corporate tax law places similar requirements on Free Zone Persons who are looking to be treated as a Qualifying Free Zone Person (QFZP) within the UAE corporate tax legislation.

Entities looking to be treated as a QFZP will still be required to demonstrate adequate substance in the UAE and will need to state such in their UAE corporate tax return (which would be submitted through the Federal Tax Authority portal, EmaraTax).

What does this mean for your business?

  • If you were previously required to comply with the Economic Substance Regulations, you are no longer required to satisfy these requirements for fiscal years that ended after 31 December 2022.
  • All fines imposed under the provisions of Cabinet Decision No. 57 for fiscal years that ended after 31 December 2022, will be cancelled. Any fine paid in relation to a financial year that ended after 31 December 2022 will be refunded.

To speak with us in relation to any of the changes to Economic Substance Regulations (ESR), or any tax matters or issues more generally, please contact one of the team members above.

We want to thank Volodia Gire, Trainee Associate at Baker McKenzie, for her contribution to this alert.

Contact Information
Tina Hsieh
Partner
Dubai
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tina.hsieh@bakermckenzie.com
Reggie Mezu
Special Counsel
Dubai
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reggie.mezu@bakermckenzie.com
Ben Phillips
Associate
Dubai
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ben.phillips@bakermckenzie.com

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