The abolishment of the UAE Economic Substance Regulations has been published in the Official Gazette on 16 September 2024 from financial year 2023. The Cabinet Decision No. 98 of 2024 amends Cabinet Resolution No. 57 of 2020 concerning Economic Substance Requirements, by adding Article (2) B to limit its application to fiscal years between 1 January 2019 and 31 December 2022. 

The removal of any compliance with with the economic substance regulations was a likely development following the introduction of corporate tax and should help reduce the overall burden on businesses in the UAE. 

Key Takeaways: 

The material implications from the Decision include: 

• Scope of Cabinet Resolution No. 57 of 2020 concerning the Determination of Economic Substance Requirements remains applicable only for fiscal years commencing from 1 January 2019 to the fiscal year ending on 31 December 2022. 

• Therefore, The ESR regime in the UAE has been withdrawn for financial years starting after 31 December 2022. 

• Entities should maintain proper documentation regarding ESR submissions for the effective ESR period – financial years starting on or after 1 January 2019 till financial year ending on or before 31 December 2022, as the Federal Tax Authority may conduct ESR audits. 

• Administrative fines imposed post this effective period shall be ineffective, and the authority shall refund the fines paid by the licensees for the fiscal year ending after 31 December 2022. All grievances filed for fiscal years ending after 31 December 2022 shall be ended. 

• If your entity, being a licensee, has filed any appeal requests or paid any fines pertaining to fiscal years ending after 31 December 2022, such entities are eligible for refunds towards fines paid, and their grievances filed with the National Assessing Authority will be cancelled. 

Conclusion 

The removal of any compliance to the economic substance regulations was a likely development following the introduction of corporate tax and should help reduce the overall burden on businesses in the UAE. Your business should take note the obligations prior to FY 2023 which remain in force and elements under ESR such as Substance absorbed into the Corporate tax Legislation. 

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