Economic Substance Regulations 2025
To keep up with global tax standards and reinforce transparency, the UAE rolled out the Economic Substance Regulations back in 2019. These rules were originally introduced to meet commitments under the OECD Inclusive Framework and to address the European Union’s concerns about the country’s tax system. Since then, the regulations have gone through several updates, including key changes in 2020 and most recently in 2024. One of the latest amendments, through Cabinet Resolution No. 98 of 2024, relieved businesses from submitting notifications and reports for any financial years ending after December 31, 2022. This move aligns with the launch of the UAE’s Corporate Tax regime, streamlining reporting requirements.
The Economic Substance Regulations 2025 continue to apply to companies operating in both mainland and free zones that are involved in what’s called Relevant Activities, such as banking, insurance, or holding companies. These businesses must prove they have real operations and decision-making taking place inside the UAE. The goal of the Economic Substance Regulations 2025 is to ensure that entities are not simply set up on paper but are actively contributing to the country’s economy. By maintaining compliance, businesses not only meet legal requirements but also strengthen their credibility with regulators and partners.
Economic Substance Reporting Requirements in the UAE
The Economic Substance Regulations were rolled out in the UAE through Cabinet Resolution No. 31 of 2019, with further clarification and enforcement guidelines issued by the Ministry of Finance and relevant authorities. These regulations apply across all emirates including Dubai and Abu Dhabi. Under the Economic Substance Regulations 2025, businesses in the UAE need to check if they are involved in any of the defined Relevant Activities such as banking, insurance, intellectual property, or holding companies.
If a business falls under one or more of these categories, it must then ensure it meets the required substance tests. That includes having real operations, proper management, and spending a fair amount on local resources. Companies that carry out these activities are expected to file annual reports with the regulatory body assigned to them, which is listed in Cabinet Resolution No. 58 of 2019. The aim of the Economic Substance Regulations 2025 is to ensure that businesses claiming UAE residency are genuinely contributing to the local economy rather than operating as offshore setups. Following these rules not only keeps companies compliant but also protects them from penalties and keeps their reputation intact.
What Are the Relevant Activities Under Economic Substance Regulations 2025?
Under the Economic Substance Regulations 2025, certain business operations are defined as “Relevant Activities.” If a company in the UAE is involved in any of these, it must assess whether it meets the required economic substance criteria. This helps ensure that the company has a real presence and conducts core activities within the country.
The following are considered Relevant Activities:
- Banking.
- Insurance.
- Fund Management.
- Lease-Finance.
- Headquarters Businesses.
- Shipping.
- Holding Companies.
- Intellectual Property (IP).
- Distribution and Service Centre Businesses.
Businesses carrying out one or more of these activities should evaluate their operations carefully to stay compliant with Economic Substance Regulations 2025.
What Are the Economic Substance Requirements in the UAE?
To comply with the Economic Substance Regulations 2025 in the UAE, companies engaged in any of the defined relevant activities must meet certain key conditions, known as the Economic Substance Test. These requirements are designed to ensure that businesses claiming to operate in the UAE are genuinely carrying out substantial activities within the country.
To pass the Economic Substance Test under the Economic Substance Regulations 2025, a company must:
- Carry out core income-generating activities in the UAE related to the relevant business activity.
- Be directed and managed from within the UAE. This means the decision-making for the activity must happen locally, such as through board meetings held in the UAE.
- Based on the level of business operations in the UAE, the company must also:
- Employ an adequate number of qualified full-time staff physically present in the UAE.
- Spend a sufficient amount on operational costs within the UAE.
- Own or lease enough physical assets in the UAE necessary to carry out the activity.
Meeting these standards confirms that a business has real economic presence in the UAE and is not simply established to benefit from tax advantages.
What Are the Reporting Requirements Under UAE Economic Substance Regulations?
Under the Economic Substance Regulations 2025, all UAE entities that carry out any of the defined relevant activities must submit specific information every year to their respective regulatory authority the one that issued their trade license.
Entities established on or before 30 April 2019 must have been compliant with the regulations starting from that date, with their first reports submitted in 2020. Any entity set up after 30 April 2019 is required to comply with the Economic Substance Regulations 2025 as soon as they receive their trade license, and their first reports would be due the following year or later, depending on the financial year.
The reporting includes details about the type of relevant activity conducted, income earned, expenses incurred, employees, physical assets, and management structure all to prove that the business has real economic presence in the UAE and meets the required substance standards.
conclusion
In conclusion, the Economic Substance Regulations 2025 play a key role in ensuring that companies in the UAE maintain genuine business operations and contribute meaningfully to the local economy. Whether your business operates in banking, shipping, or intellectual property, meeting the economic substance test is not just a legal requirement but also a step toward building trust and transparency with authorities and stakeholders. By staying compliant with the Economic Substance Regulations 2025, companies can avoid penalties, enhance their credibility, and continue to benefit from the UAE’s strong regulatory and tax environment.
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