Pursuant to introduction of the Regulations in the UAE on 30 April 2019, guidance on application of the Regulations was issued on 11 September 2019. A Cabinet Decision determining the regulatory authority for the purposes of ESR was issued on 4 September 2019. The Ministry of Finance (MoF) recently published frequently asked questions (FAQs) to provide businesses with further clarity and practical guidance on implementation of ESR.
This alert discusses some of the key points to be considered by relevant UAE entities (Licensees), including those in mainland UAE, onshore and offshore free zones, legal entities and branches/representative offices:
(i) Timelines for notification and reporting:
Licensees need to submit a notification to their regulatory authority from 1 January 2020 onwards. There are multiple regulatory authorities depending on the relevant business activity, license, and location of an entity (UAE government body, free zone authorities). It is noted that such regulatory authorities may issue their own internal ESR policies and set specific dates for notification (e.g. 31 March 2020).
Further, the FAQs provide a clarification that a Licensee would not be required to file a notification in case the Licensee does not undertake any of the prescribed Relevant Activities (i.e., banking, insurance, investment fund management, lease finance, headquarters, shipping, holding company, intellectual property, distribution and service centers). However, we note that the Regulations require all Licensees to file the annual notification stating whether they conduct a Relevant Activity or not. More clarity on this issue is awaited.
Licensees, which have Relevant Activities with related income in the relevant financial year, must file a separate ESR report and the timeline is within 12 months from the end of the relevant financial year.
(ii) Determination and demonstration of economic substance
The FAQs provide for several clarifications while determining and demonstrating economic substance in the UAE:
(iii) Penalties and exchange of information
Given the above, we recommend that you undertake impact and gap assessment at the earliest in order to be compliant with the Economic Substance Regulations in the UAE.
 Cabinet of Ministers Resolution No.31 of 2019 concerning Economic Substance Regulations
 Ministerial Decision No. 215 for the year 2019 on the issuance of directives for the implementation of the provisions of the Cabinet Decision No (31) of 2019 concerning Economic Substance Requirements
 Cabinet Decision No 58 of 2019 issued on 4 September 2019
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