The UAE Cabinet has issued Decision No. 98 of 2024, which amends the Economic Substance Requirements (ESR) originally set forth in Cabinet Decision No. 57 of 2020. Key updates include:
- End of ESR for Financial Periods Starting in 2023
From January 1, 2023, onwards, the regulation will no longer be enforced. Businesses with financial periods beginning from this date are exempt from ESR obligations.
- Cancellation of Administrative Penalties
All fines associated with ESR non-compliance for financial periods ending after December 31, 2022, have been nullified. Businesses that previously paid these fines will be eligible for refunds, and any appeals on these penalties will be dismissed.
- Retroactive Adjustment of Cessation Date
ESR enforcement was initially set to conclude on June 1, 2023. However, the effective cessation date has been backdated to January 1, 2023, allowing for a five-month grace period.
- Historical Compliance
While ESR no longer applies for future periods, businesses are still required to meet ESR obligations for financial periods spanning from January 1, 2019, to December 31, 2022.
Cabinet Decision No. 98 of 2024, issued on September 2, 2024, will take effect upon its publication in the Official Gazette. While it was available on the UAE’s legislation website by September 24, 2024, it’s not yet confirmed if this aligns with the official publication date.
The UAE remains under scrutiny based on Criterion 2.1, which addresses regimes that offer exemptions for foreign-sourced income. Additionally, companies operating under the Qualified Free Zone Person (QFZP) regime will still need to meet substance requirements as specified in Article 18.1(a) of Federal Decree-Law No. 47 of 2022.
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