MBG’s Economic Substance Regulations (ESR) Team is committed to guiding you through the complexities of the UAE’s ESR, ensuring comprehensive compliance and strategic excellence tailored to your business needs. Our ESR team offers a range of specialized services designed to support your organization at every stage of the compliance process.

Why ESR in the UAE?

The UAE has introduced ESR as part of its commitment as a member of the OECD inclusive framework and in response to an assessment of its tax framework by the EU Code of Conduct Group on Business Taxation.

The implementation of ESR in the UAE underscores the country’s dedication to international tax standards, preventing blacklisting, promoting economic substance, ensuring regulatory clarity, and aligning with global economic integration. By complying with ESR, the UAE enhances its standing as a competitive and appealing destination for businesses seeking transparency, compliance, and opportunities for strategic growth.

ESR Calendar

What are the ESRs in the UAE?

The UAE issued ESR (the Regulations) in April 2019, repealed by Cabinet Resolution No.57 of 2020 in August 2020, which introduced a requirement for UAE entities to maintain an adequate economic presence in the UAE relative to the activities they undertake.

Our Services

ESR Assessment:

• Business Activities: Identify and categorize the business activities of the company to determine if they fall under the scope of ESR.
• Relevant Activity & Relevant Income: Confirm if the entity qualifies as a Relevant Entity under the ESR conducting any relevant activity. Also, whether the entity is earning relevant income from the identified relevant activity.
• Exemptions: Assessing whether the entity is eligible for any exemptions on ESR with relating to the relevant reportable year.

Filing of ESR Notification:

Confirm that the entity has submitted the required ESR notification for conducting one or more of the Relevant Activities. This notification must be filed within six months of the end of the financial year (FY) on the Ministry of Finance’s (MoF) online ESR portal. As part of this filing, entities must disclose which relevant activities were conducted, whether any income was earned from these activities, and whether such income was subject to tax outside the UAE. For a UAE entity with multiple UAE branches, only one consolidated notification is required. Both Licensees and Exempted Licensees must file a Notification to their respective Regulatory Authorities for the relevant FY in which the business conducts the relevant Core Income Generating Activity.

Economic Substance Test:

• Core Income-Generating Activities (CIGAs): Review the entity’s activities to ensure they conducts necessary CIGAs in the UAE.
• Directed and Managed in the UAE: Assess whether the entity’s relevant activity is directed and managed in the UAE.
• Adequate Resources: Evaluate if the entity has adequate number of qualified employees, operating expenditure, and physical assets in the UAE.

Filing of ESR Report – provide guidance on preparing and submitting the annual ESR report:

• Guide on preparing and submitting the annual ESR report within twelve months of the financial year-end.
• Include verification of compliance with ES Tests, details of outsourced service providers (if applicable), specific CIGAs conducted, relevant income from relevant activates, operating expenditure, and full-time employee numbers per activity, and identification of ownership structures.

Record Keeping:

• Advising and assisting on maintaining comprehensive documentation to support ongoing ESR compliance.

Risk Assessment and Gap Analysis:

• Current Compliance Status: Analyze the entity’s current compliance status with ESR requirements.
• Gap Analysis: Identify any gaps or areas of non-compliance regarding the ESR notifications or ESR reports already filed.
• Risk Mitigation: Recommend steps to address identified gaps and mitigate risks.

Assistance in ESR Audits from FTA:  

Navigating an ESR audit can be daunting. MBG offers expert assistance to ensure your business is well-prepared and compliant.

• Review the previous ESR submissions to evaluate on the adequacy of the substance demonstrated.
• Compilation of documents as per the audit requirement list from FTA.
• Review of documents to ensure the audit requirements are complied with.
• Draft responses to the audit queries from FTA and assist in the submissions.
• Review and assist in drafting an appeal in the case of a penalty, and support procedures for penalty waivers.
• Assist in understanding and formulating responses for communications with FTA.

Penalties and Consequences:

• Identifying instances of non-compliance to identify the reasons for penalty applied.
• Providing support in drafting appeal statements for penalty waivers.

Timeline for ESR:

• Notification Submission: Entities must submit their ESR Notification within six months from the end of their FY.
• ESR Report Submission: Entities must submit their ESR Report within twelve months from the end of their FY.

Why Choose MBG?

In today’s complex and ever-evolving regulatory landscape, businesses require a reliable partner to navigate the intricacies of ESR. MBG Corporate Services stands out as the premier choice for ESR services, and here’s why:

• Expertise and Experience:

MBG Corporate Services has a team of seasoned professionals with extensive experience in regulatory compliance, specifically ESR. Our experts possess deep knowledge of local and international regulations, ensuring that your business remains compliant with the latest requirements.

• Comprehensive ESR Solutions:

We offer a full suite of ESR services, including initial assessment, compliance gap analysis, report preparation, and ongoing support. Our comprehensive approach ensures that all aspects of ESR compliance are covered, providing peace of mind and allowing you to focus on your core business activities.

• Tailored Approach:

At MBG, we understand that each business is unique. We provide customized solutions tailored to your specific needs and circumstances. Our team works closely with you to develop a compliance strategy that aligns with your business objectives and operational model.

• Proactive Compliance:

Regulatory requirements can change rapidly. MBG’s proactive approach ensures that your business stays ahead of the curve. We continuously monitor regulatory updates and provide timely advice and adjustments to your compliance strategy, minimizing the risk of non-compliance.

• Global Reach with Local Expertise:

With a presence in key markets worldwide, MBG combines global expertise with local knowledge. This dual advantage allows us to deliver ESR services that are both globally informed and locally relevant, ensuring compliance across jurisdictions.

• Transparent and Ethical Practices:

Integrity and transparency are at the core of our operations. We adhere to the highest ethical standards, ensuring that our services are delivered with honesty and accountability. Our clients can trust that we act in their best interests, providing unbiased and accurate advice.

• Proven Track Record:

MBG has a proven track record of successfully assisting numerous businesses with their ESR compliance. Our satisfied clients testify to our reliability, efficiency, and effectiveness in managing their regulatory requirements.

• Cost-Effective Solutions

We understand the importance of cost management for businesses. MBG offers competitive pricing without compromising on the quality of our services. Our cost-effective solutions provide excellent value, ensuring that your business remains compliant without excessive expenditure.

• Commitment to Excellence:

Above all, MBG is committed to delivering excellence in everything we do. Our dedication to quality, client satisfaction, and continuous improvement ensures that you receive the best possible ESR services.

Benefits of Compliance

Ensuring compliance with ESR in the UAE is not just about meeting legal requirements; it also offers numerous strategic advantages for your business.

1. Avoidance of Penalties

• Financial Penalties: Non-compliance with ESR can result in substantial financial penalties. By adhering to ESR requirements, businesses can avoid these costly fines.
• Reputational Risk: Compliance helps maintain your business’s reputation, as non-compliance can lead to public disclosure of penalties and damage to your brand image.

2. Enhanced Business Credibility

• Trust and Confidence: Demonstrating compliance with ESR enhances your business’s credibility with stakeholders, including investors, customers, and partners, fostering trust and confidence in your operations.
• Regulatory Standing: Maintaining compliance reflects positively on your business’s regulatory standing, which can be advantageous in dealings with government authorities and regulatory bodies.

3. Improved Operational Efficiency

• Streamlined Processes: Implementing ESR requirements often leads to the establishment of more structured and efficient business processes, improving overall operational efficiency.
• Better Record-Keeping: Compliance necessitates accurate and thorough record-keeping, which can enhance your business’s internal controls and decision-making processes.

4. Competitive Advantage

• Market Differentiation: Being a compliant business can differentiate you from competitors who may not adhere to ESR, positioning you as a responsible and reliable entity in the market.
• Attractive to Investors: Investors are more likely to be attracted to businesses that demonstrate strong governance and compliance, increasing your chances of securing funding and investment.

5. Long-Term Sustainability

• Regulatory Preparedness: Compliance with ESR ensures that your business is well-prepared for future regulatory changes, contributing to long-term sustainability and resilience.
• Adaptability: A compliant business is better positioned to adapt to new regulations and market conditions, ensuring continued success and growth.

6. Economic Contribution

• UAE’s Economic Growth: By complying with ESR, businesses contribute to the UAE’s efforts to meet international standards and enhance its economic substance, supporting the country’s economic growth and development.
• Positive Business Environment: Widespread compliance creates a fair and transparent business environment, fostering healthy competition and innovation.