As a result of European Commission concerns, the United Arab Emirates (UAE) was added to the European Union’s list of non-cooperative tax jurisdictions. In response, the UAE introduced Economic Substance Regulations (ESR) vide Cabinet Decision No. 57 of 2020, effective from 1 January 2019.

ESR effectively imposes a requirement for UAE entities (including offshore companies and branches of local and foreign companies) that carry out and earn income from any of the Relevant Activities to maintain economic substance in the UAE specific to each Relevant Activity. Annual filing requirements must be met or organizations risk penalties for non-compliance.

This document highlights requirements under ESR and provides information on notification and reporting compliances, including some of the practical challenges associated with ESR.