Economic Substance Regulations DIFC

Economic substance regulations DIFC (Dubai International Financial Centre) are imposed by the registrar of companies in the UAE. These Economic substance regulations UAE were issued in 2019 by the UAE as a part of the country’s commitment as a member of the OECD inclusive framework on 30th April 2019. These were introduced by the European Union code of conduct group on business taxation. On 11th September 2019, UAE issued Guidance on the application of the regulations under Ministerial decision no. 215 along with this, the Determination of regulatory competencies listed the regulatory authorities tasked with both enforcement and administration of the regulations. 


Economic Substance Regulations (ESR) in DIFC (Dubai International Financial Centre) Background 

Requirements to meet Economic Substance Test in UAE

Economic Substance Regulations were enacted in the UAE in order to comply with the global standard of Base erosion and profit shifting (BEPS). As per the regulations, the UAE companies are required to – 


  1. File annual Economic substance regulations UAE notification with DIFC showcasing whether the business they are conducting is relevant or not. 
  2. Economic substance tests will be conducted to find out if they are carrying out any kind of substantial economic activities in the UAE. 
  3. File an annual economic substance report or return with the DIFC. 


Key Points To Note About Economic substance regulations UAE And How You Can Prepare Your Business Under These Regulations? 

ESR Reporting Requirements

Here are some of the key points that you must note when it comes to Economic substance regulations – 


  •  All the norms and details about the UAE Economic substance legislation can be easily found at the Ministry of Finance website. 
  • As per the latest updates, the UAE Ministry of Finance has made the Ministerial decision no. 100 of 2020. These decisions include a relevant activities guide using which you can determine if your business is conducting relevant activities falling under the scope of Amended Economic Substance Dubai and is an exempted Licensee updated under the Amended Economic substance regulations. 
  • As per the latest amendments, it is necessary that all the UAE firms that are running relevant activities file notifications as well as returns on the MOF portal irrespective of the incorporation or registration in the UAE. 
  • All the firms that fall under the defined norms of exemption in the latest amendments of Economic substance regulations Dubai must also file the notification on the MOF portal but are not required to file a report. 


Economic Substance Regulations DIFC: Who Should File the Economic substance regulations UAE Notification?

Any business that engages in the following relevant activities

These economic substance regulations are applied to licensees with respect to the following activities – 

  • Insurance businesses 
  • Banking businesses
  • Lease-finance businesses
  • Headquarter  businesses 
  • Intellectual property businesses 
  • Investment fund management businesses
  • Distributions & service center businesses


For more information, you can refer to the Ministerial decision 100 Schedule 1. 


How to File Annual Notification for Economic Substance Regulations in DIFC?


The Annual Notification for Economic Substance Regulations in DIFC must be filed electronically on the MOF platform. DIFC has a complete set of instructions published online to help you through the process of submitting the annual report online. 


In case, you are looking for a notification template & report template, you can visit the official MOF site.


Which DIFC entities need to file a Notification?


As per the Amended Economic Substance Dubai, every entity that is conducting a relevant activity (including the exempted Licensee) must file a notification on the MOF portal within 6 months of the end of their reportable time period. All the DIFC entities that are undergoing liquidation or are under dissolution are also required to file a notification before the completion of their liquidation or dissolution process. 


DIFC Economic Substance Regulations deadline 


The Economic substance regulations deadline for filing the report on the MOF portal for any relevant DIFC firms with the financial year beginning on or after 1st Jan 2019 is 31st December 2020. 


Who is exempt from filing an ESR Notification in DIFC?


Like any other regulations, there is some exemption in the Economic Substance Dubai in DIFC as well. Following are the Licensees that are exempted from filing an ESR notification in DIFC – 


  • Any licensee who is a tax resident outside the UAE
  • A UAE resident-owned business that is not part of any kind of multinational group and is specifically running a business in the UAE only. 
  • Any branch of a foreign organization that is subject to tax on all of its income is relevant in the foreign jurisdiction. 
  • Any investment fund along with its underlying SPVs or investment holding companies. 


To claim any of these exemptions, the body should provide sufficient evidence along with the Economic Substance Regulations UAE  form to the DIFC. For more information on the same, you can refer to the Ministerial Decision 100.  


Economic Substance Test Requirements in DIFC

If you are required to meet the Economic substance test, you are required to demonstrate these 3 conditions. 

  • You need to have adequate employees, physical assets as well as expenditure in the UAE
  • All the core income-generating activities must be undertaken in the UAE. 
  •  The entity must be directed and managed in the UAE. 


Penalties for Failing to File Economic Substance Notification in DIFC

Economic substance regulations Dubai

If you fail to submit the Economic Substance notification in DIFC, the UAE companies have to submit the fine in the range of AED 10k – AED 50K. In case you fail to provide accurate or complete information to the DIFC, you will be subject to an AED 50k penalty as per Article 66 (2) of DIFC operating law for hiding information. 


Are the Economic substance regulations applicable to DIFC entities? 


Unlike what you believe, as per the latest amendments, the ESR Dubai is applied everywhere in the UAE that includes all the free zones as well as financial free zones. All the UAE businesses who are conducting any kind of relevant activity are subject to the Economic substance regulations DIFC. 


How can KGRN help?

ESR filing Services in UAE

KGRN can help you with everything that you need to file the Economic substance regulation notification. Right from meeting all the requirements of the test to filing the adequate forms, we at KGRN will help you throughout the process, without you having to lift a finger. 


Our experienced team will help you analyze your business activity and find out if you are abiding by all the rules and regulations set under Economic substance regulations DIFC. We will assist you through everything including – 


  • Assessment of whether you are following all the rules. 
  • Assessing if you are able to satisfy the economic substance test 
  • Filing Economic substance regulations UAE form.

For more questions & clarifications on Economic Substance Regulations in DIFC, Click here

And, if you are looking for help with the filing Economic Substance Regulations UAE report, all you have to do is contact KGRN, the best CA firm in the UAE.  

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