Since the beginning of the rapid economic rise of the UAE, it has been recognized as a global hub for business and investment. The continually evolving regulatory environment fosters economic growth and international investment. In 2019, the UAE introduced ESR (Economic Substance Regulations) laws, aimed at ensuring that business was being conducted within the country in real terms, not simply for tax or other purposes.
In 2024, the UAE reversed this decision for all financial years ending after January 1 2023 in a move that is likely to be connected to the new Corporate Tax requirements recently introduced. Here, we’ll explore the implications of this regulatory change for businesses in the UAE navigating corporate tax compliance.
First, and most importantly, it reduces the administrative burden on companies, making compliance more straightforward. For certain business types and industries, proving their business activity is no longer necessary, which also makes the UAE a more attractive place to conduct business.
Removing ESR and adding Corporate Tax laws reduces the administrative burden on companies, while maintaining transparency and accountability, and preventing tax evasion. Businesses will still need to declare income accurately and maintain proper documentation, and, where applicable, submit to audits. But by having only one set of requirements, businesses can focus better.
ESR presented businesses with challenges related to the time-consuming nature of documentation, the burden of proof of economic activities, and an uncertainty related to how to interpret the regulations.
Now that they have been lifted, it should have the effect of reducing the administrative burden, reducing complexity related to compliance, and eliminates the need to demonstrate economic substance.
To ensure transparency and accountability, and prevent tax evasion, businesses in the UAE are required to be compliant with the following laws and regulations:
These frameworks are deemed sufficient for keeping businesses accountable to the UAE tax authority, while keeping the administrative burden to a minimum.
ESR applied to businesses certain sectors (banking, insurance, investment fund management, lease-finance, and shipping, as well as headquarters, holding companies, and distribution and service centres). Those sectors will see the most alleviation of compliance requirements, but we believe all businesses will benefit from a more streamlined regulatory environment.
We always recommend that businesses keep their regulatory policies up to date with any changes, and are available for consultation if needed. All businesses operating in the UAE should maintain proper documentation, ensure that they are compliant with tax regulations, and review and update any relevant policies internally.
With plenty of experience and first-hand knowledge available, Swift Audit is ideally placed to help businesses in a variety of ways. We can provide expert advice on compliance requirements, both pre- and post-ESR, as well as relating to the new Corporate Tax. Our consultants can review and update compliance policies, as well as assisting with putting the right systems and controls into place to ensure compliance with the relevant laws and regulations.
Our team of professionals is available to help with compiling and filing Corporate Tax returns, as well as assisting with the ongoing maintenance of documentation necessary for compliance. Our team also offers comprehensive tax and business advisory services to help your business with any needs relating to these changes.
Swift Audit is ideally placed to assist your business with adjusting to a post-ESR regulatory environment. Get in touch with us with any questions you have. Our team would be happy to help.