Economic Substance Legislation

Economic Substance Legislation UAE

The UAE Ministry of Finance issued Economic Substance Legislation in April 2019 recommending UAE onshore and free zone entities carrying out any of the activities such as Distribution and Repair Services, Banking, Fund Management or Investment Dealing, Insurance Company, Shipping Trade, Financial Services, Real Estate Business, Control Center (Head Office), Holding Corporation, all needs to maintain an economic presence in the United Arab Emirates (UAE).

Who comes under the Economic Substance legislation?

Along with all UAE onshore and free zone entities (mentioned above), the economic substance legislation applies to the legal person, non-profit associations, and partnerships.

Why the Economic Substance legislation was introduced?

The European Commission included UAE in the EU’s list of non-cooperative tax authorities and that’s the main reason behind the introduction of the economic substance legislation in UAE.

It aims to make sure those UAE entities that commence particular activities do not unnaturally attract profits. The legislation reveals the real economic activity in the UAE.

If your entity is receiving profits from any related activities and you need expert support, we are here to help you understand the process and minimize risk and costs.

Why Economic Substance legislation is important?

This legislation compels all UAE businesses, which are within the extent of the Rules need to inform the applicable regulatory authority starting in January 2020.

In case any entity fails to follow the rules would payout penalties (minimum AED 10,000 and maximum AED 50,000 in the initial year, increases further in the following year).

Apart from these penalties, the legislative authority may suspend, cancel, or reject the business license renewal.

Are these regulations different from other countries?

The Economic Substance legislation is quite common to the regulations followed in other countries with the same tax setting as they compel with the rules introduced by the OECD and European Union.

What are the requirements in the Economic Substance Legislation?

Every License business holder must submit a notice to the right regulatory body as specified in the legislation.

Apart from this, the business entities must face an “economic substance test” and submit a complete report to the right regulatory authority within twelve months from the ending of the applicable fiscal period.

Know more about the economic substance test: 

This test needs a Licensee to show that:

  • The applicable activity and licensee are made and utilized in the UAE
  • The applicable CIGAs (Core Income Generating Activities) are occurring in the UAE
  • The licensing entity must have required employees and physical assets and disbursement in the UAE.

If your business is within the range of the regulations you can learn what action to take in to comply with the new legislation at PMC Solutions DMCC.

Are there exemptions in the Economic Substance legislation for any company? 

There are exemptions for companies where involvement of the federal government, Emirate government, or any legislative authority has a minimum 51% of direct or indirect possession.

How PMC Solutions DMCC Can Help You?

If you are unsure that the legislation may apply to your entity and unaware of the steps that need to be taken, then PMC Solutions DMCC team would be happy to assist you.

We would help you out in assessing whether you are falling within the rules, assessing whether you meet the requirements of the Economic Substance test, and assist you in notification filing.

Our experienced staff will be happy to analyze your business activities and give guidance regarding full economic substance legislation compliance.

For more information Contact +9714 275 6718 Whats app +971 588 631 656 or email –

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