The Economic Substance Regulation (ESR) introduced in the UAE in 2019 is a critical law aimed at addressing international tax compliance and ensuring transparency in cross-border transactions. This regulation applies to specific business activities and requires companies conducting these activities to demonstrate economic substance within the UAE. In this article, we will explore the background, objectives, scope, and compliance requirements of ESR. Background: Why ESR Was Introduced in the UAE The UAE has long been a hub for international trade and cross-border transactions. However, concerns about tax avoidance and profit shifting led to global efforts to curb harmful tax practices. The Role of OECD and BEPS The Organization for Economic Co-operation and Development (OECD) introduced the Base Erosion and Profit Shifting (BEPS) framework, which outlines 15 action plans to address tax avoidance and ensure fair distribution of profits across countries. The UAE, as a member of the BEPS ...
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