On 10.08.2020, the so-called ESR regulations came into force in Dubai. The "Economic Substance Regulations" determine the principles according to which the United Arab Emirates recognize companies based there as such. The ESR in Dubai requires in particular an actual company substance on site. They can exist, for example, in a building or employed workers.
1st ESR in Dubai: history and background
The regulations on economic substance are laws by which the UAE regulates economic activities on the ground. With them, the Emirates are responding, among other things, to joint obligations of the OECD member states and from contracts with the European Union. The aim of the ESR in Dubai is to avoid harmful and abusive tax practices.
The ESR in Dubai should thus avoid the abuse of tax laws, especially by setting up letterbox companies. In order to benefit from existing tax advantages, the respective company should actually operate locally.
‘Tax advantage’ primarily means the exemption from the 9 % corporate tax introduced in June 2023. Because certain companies are exempted depending on their business activities. Through the ESR in Dubai, they have to prove once a year to the competent supervisory authorities that they actually carry out their activities on site.
2nd content of the Economic Substance Regulations in the UAE
The ESR in Dubai and the rest of the UAE applies to companies of all legal forms if they carry out any of the following activities on site:
This article does not replace tax or legal advice in an individual case. Facts, current law, jurisdiction, documentation and implementation remain decisive.