The Economic Substance Regulation UAE applies to all business entities and partnerships that engage in a Relevant Activity within the UAE. They apply throughout the country, in both Free Zones and Financial Free Zones alike.
Hence, ESR in Dubai extends to all entities located onshore and in Free Zones in case they generate an income from a Relevant Activity. For instance, ESR compliance with UAE regulations in the DIFC extends to all entities that conduct a Relevant Activity within the jurisdiction of the DIFC.
This is regardless of their business structure type or operational size. Hence, the DIFC serves as the Regulatory Authority and enforcer of the Economic Substance Regulations Dubai in its zone. Since branches registered in the UAE act as an extension of the primary or parent branch, they do not have a separate legal existence.
Hence, if the parent company is in the UAE, it must file one composite Notification and Report containing details of all its branches. However, a branch of a foreign entity must comply with the Economic Substance Regulations UAE, unless the income falls under taxation of the head office jurisdiction.
This test is met when the branch’s income is used to calculate the patent office’s taxable income. Also, when the branch is registered outside the nation, the entity does not have to consolidate its activities to comply. However, this holds only if the income from the foreign branch faces taxation under a foreign jurisdiction. Additionally, the Economic Substance Regulations Dubai acts on entities belonging to foreign multinational groups.