The document provides a comparative analysis of the original and revised UAE Economic Substance Regulations. It summarizes the key changes made between the original law (CD 31 of 2019) and regulations (MD 100 of 2020) and the revised law (CD 57 of 2020) and regulations (MD 215 of 2019). Some of the major changes included expanding the definition of licensee, adding definitions for key terms, clarifying the activities subject to economic substance requirements, streamlining the notification process, and specifying documentation required to be submitted including financial statements. Exemptions were also expanded and certain activities like operating leases were removed from being considered relevant activities. The role of the National Assessing Authority was clarified.

1. Ugam o o rthy, B.Co m FCA.,
A U D I TO R | TA X C O N S U LTA N T | A D V I S O R |
0 5 0 -8 8 6 5 3 6 8 , 0 5 6 7 4 1 4 2 4 3,
L a n d l i n e : 0 4 - 2 4 0 1 1 1 0
W W W. E S R C O M P L I A N C E U A E . C O M |
W W W. VAT I N U A E . C O M
yyuuggaa@gmail.com, md@yyuuggaa.com
COMPARATIVEANALYSIS
UAE Economic Substance Regulations
ORIGINAL vs REVISED

2. 1. Definitions
2. Notification and Reporting
3. Relevant Activities
4. Penalties
5. Our Recommendations / Way
Forward
TABLE OF CONTENTS

3. No. Topic
Original
Law: CD 31 of 2019
[Regulations: MD 100 of
2020]
Revised
Law: CD 57 of 2020
[Regulations: MD 215 of 2019]
Comments /
Analysis
1 Licensee
Licensee: A natural or juridical
person licensed by the competent
licensing authority/ authorities in
the State to carry out a Relevant
Activity in the State, including a
Free Zone and a Financial Free
Zone
Exemption: Commercial company
in which the Government of the
State, or the Government of any
Emirate of the State, or any
governmental authority or body
of any of them has at least 51%
direct or indirect ownership in its
share capital.
Licensee: Licensee means ANY of the following two entities:
(i) Juridical Person (legal entity - incorporated inside or
outside the state), or
(ii) An unincorporated partnership (no legal personality);
Registered in the state, including a free zone and financial free zone
and carries out relevant activity.
Exemption (exempted Licensee)
(i) A licensee that is an investment fund
(ii) A licensee that is Tax Resident in a jurisdiction other than a state
(iii) A licensee that is:
a) Owned by resident or residents (directly or indirectly)
in the state
b) Its not part of MNE Group
c) It only carries out business in the state
(iv) A licensee that is branch of foreign entity the relevant
income of which is subject to tax in a jurisdiction other
than the state; and
(v) Any other licensee as determined pursuant to decision
of the Minister of Finance
(vi) Branches of local entity
• ESR is not applicable on
natural person
• Entities even held
more than 51% by
Govt are not exempt
from ESR
• ESR is applicable on all
legal entities except
exempted entities.
• Exempted entities will
have to submit
notification and they
will have to prove the
reasons of not
application of ESR to
them
• Natural person, Trust,
and foundation, Sole
proprietorships are not
subject to ESR - FAQ
1. DEFINITIONS

4. No Topic
Original
[Law: CD 31
of 2019
Regulations: MD
100 of 2020]
Revised [Law: CD 57 of 2020
Regulations: MD 215 of 2019]
Comments
Analysis
2
Investment
Fund
The definition of
Investment Fund was
not given in the Law and
Regulations issued
earlier
“an entity whose principal business is the issuing of investment
interests to raise funds or pool investor funds with the aim of
enabling a holder of such an investment interest to benefit from the
profits or gains from the entity's acquisition, holding, management
or disposal of investments and includes any entity through which an
investment fund directly or indirectly invests (but does not include an
entity or entities in which the fund invests)
As mentioned in revised licensee
definition, Investment fund is
exempt from VAT and this is
related description of the Fund,
which is exempt from ESR
3 MNE Group
There was no concept of
MNE Group in the earlier
Law and Regulations
Means the Group that includes:
• Two or more entities the tax residence of which is in
different jurisdiction; or
• An entity that is resident for tax purposes in one jurisdiction
and is subject to tax, with respect to the activities carried out
through a branch or permanent establishment, in other
jurisdiction
This is definition of the word
MNE, used in the revised
Licensee definition
4
Un-
incorporated
Partnership
The earlier ESR Law and
Regulations were silent
about the Unincorporated
partnership
It is a:
• Limited partnership (which is not a juridical person); or
• General Partnership
That is not registered in the state, including in a Free Zone or a
Financial Free Zone
This is definition of the word Un-
Incorporated Partnership, used in
the revised Licensee definition

5. No. Topic Revised
[Law: CD 57 of 2020
Regulations: MD 215 of 2019]
Comments
5
Connected
Person
A natural or juridical person who is
related to one or more natural or
juridical person(s) through direct or
indirect ownership or control, or
common control.
An entity that is part of the same group as licensee
or the exempted licensee
More precise definition has been
given of Connected Person and it
relates to the entities which has
common ownership or control
6
Group The word “Group” was not
defined in the previous ESR Law
and Regulations
Two or more entities related through ownership or
control such that they are required to prepare
consolidated financial statements for financial
reporting purposes under the accounting standards
applicable thereto.
The word Group has been defined
and it purely based on the
common ownership or control of
legal entities.
7
Consolidated
Financial
Statement
No Information
Means the financial statement of the Group in which
the assets, liabilities, income, expenses and cash flows
of the ultimate parent company are presented as those
of single economicentity
This is definition of the word
Consolidated Financial Statements,
used in the definition of the word
“Group”.
Original [Law: CD 31 of
2019 Regulations: MD
100 of 2020]

6. No Topic Comments
8
National
Assessing
Authority
There was no concept of
National Assessing Authority in
the Law and Regulations issued
earlier
Federal Tax Authority (‘FTA’) has been nominated as National
Assessing Authority and NAA would be carrying assessment
functions, impose penalties, hear and decide on appeals, carry
out reporting requirements etc.
9 Branches
ESR on branches were not
defined properly
Branches registered in the UAE are regarded to be an extension
of their “parent” or “head office” and therefore are not
considered to have separate legal personality.
Clarification has been given
about local entity branches and
branches of foreign entity as
well
10
Direction and
Management
Test
It is expected that atleast one
meeting would be held in a
Financial Year in the UAE
Requirement of atleast one meeting to be held in the UAE is now
removed, but Consideration must also be given to more onerous
requirements in respect of board meetings prescribed under the
applicable law regulating the Licensee or as may be stipulated in
the constitutional documents of the Licensee.
Meetings required under the
applicable Law regulating the
licensee must considered.
11
Financial
Statement to
be Submitted
Earlier, financial statements
were not listed as one of the
documents to be provided
while filing Economic
Substance Report
Financial statements are now mandatorily required to be
submitted with Economic Substance Report.
Not clarified, audited or
unaudited financial statements.
By following conservative
approach, we assumed, it
would be audited Financial
statements
Original [Law: CD 31 of 2019
Regulations: MD 100 of 2020]
Revised [Law: CD 57 of 2020
Regulations : MD 215 of 2019]

7. Topic
[Original Law:
CD 31 of 2019
Regulations:
MD 100 of 2020]
Revised
[Law: CD 57 of 2020
Regulations:
MD 215 of 2019]
Comments
12 Relevant
Income
The term Relevant
Income was not defined
Means all gross income from a Relevant Activity that is recorded in the
books and records of the licensee or the Exempted Licensee under the
accounting standards applicable there too.
Almost all related
income will be subject
to ESR
13
Parent
Company
Parent Company was not
defined in the ESR Law and
Regulations issued earlier
Parent Company means an entity that directly:
• Holds majority of the voting rights in licensee or exempted licensee
• Has right to appoint or remove majority of the Board of Directors of
licensee or exempted licensee.
• Control alone or pursuant to joint arrangement with other
shareholders or members, a majority of the voting rights in licensee
or exempted licensee
• Has the right to exercise or actually exercises, dominant direct
influence or control over licensee or exempted licensee.
14
Ultimate
Parent
Company
There was no proper
definition of ESR Law and
Regulations issued earlier
Ultimate Parent Company, means an entity of a Group that owns or there is
no other entity in the group that owns, directly or indirectly a sufficient
interest in the licensee or exempted licensee such that it:
• is required to prepare Consolidated Financial Statements under
Accounting standards; or
• would be so required if its equity interests were traded on a public
securities exchange in its jurisdiction of tax residence

8. ESR
NOTIFICATION
AND
REPORTING

9. NOTIFICATION
No. Topic
Original
Law : CD 31 of
2019
Regulations:
MD 100 of 2020]
Revised
[Law: CD 57 of 2020
Regulations: MD 215 of 2019]
Comments
1 Notification
As per original ESR “The
notification was required to
be submitted at the time
specified by the Regulatory
Authority and in the form
and the manner approved by
the Regulatory Authority”.
As per Revised ESR states that “The Notification must be
submitted within six months from the end of the Financial Year
of the Licensee or Exempted Licensee.
The Notification must be submitted electronically on the portal
that will be launched by Ministry of Finance”.
Any entity which claims to be an Exempted Licensee must
submit to the relevant Regulatory Authority, along with a
Notification, sufficient evidence substantiating its status as an
Exempted Licensee for each Financial Year in which it claims to
be an Exempted Licensee.
A Licensee is not required to meet the Economic Substance Test
(and file an Economic Substance Report) in a Financial Year in
which it has no Relevant Income. However, the Licensee
remains subject to the Notification requirement
Based on the old criteria, almost
each Regulatory Authority had
issued its own format and time to
submit notification which has been
streamlined and we believe uniform
format will be issued by the
Ministry of Finance to submit the
notification.
Businesses are required to wait for
the revised format and resubmit the
notification based on the revised
criteria.

10. 2. NOTIFICATION, ESR TEST AND REPORTING
NOTIFICATION AND REPORTING
Licensee
Non Exempted Licensee
Relevant Income
not Derived during the
year
Must submit notification but no requirement
to:
- comply with ESR test;
- Submit Report
Relevant Income
derived during the year
Must:
- submit notification
Comply ESR test;
And submit REPORT/RETURN as well
Exempted Licensee
Must submit notification for each financial year and provide sufficient evidence
for being exempted.
There is but no requirement to comply with ESR test; and Submit Report

11. RELEVANT
ACTIVITIES

12. 3. RELEVANT ACTIVITIES (CONT’D)
No Relevant Area CD 31 of 2019 (original)
[Regulations 100 of 2020]
CD 57 of 2020 (Revised)
[Regulations 215 of 2019]
Comments
1 Lease-Finance Business
In the FAQ, Lease-Finance Business included
renting assets, equipment or any other good
to another person for consideration.
Renting assets, equipment or any
other good to another person for
consideration is now removed from
the scope of Lease-Finance Business.
By removing this FAQ, the Ministry
has clarified that operating lease
will not be considered under Lease
Finance Business.
2 Holding Company
Business
A business that is:
(a) a Holding Company in accordance with
the law applicable to the Licensee
carrying out such activity in the State.
(b) has as its primary function the acquisition
and holding of shares or equitable
interests in other companies.
(c) does not carry on any other
commercial activity.
A business that is:
a) has as sole function the
acquisition and holding of
shares or equitable interests in
other companies.
b) Only earns dividend and capital
gain from its equitable interests
As per earlier ESR Law and
Regulations, a company which was
Holding Company as per applicable
Law, was being considered in the
Holding company business, subject
to the fulfillment of remaining two
conditions, and now this condition
has been removed.
The precise definition of holding
company business has been
introduced, and it would be helpful
to have correct interpretation of the
Holding Company Business.

13. NO
Relevan
t Area
CD 31 of 2019 (original)
[Regulations 100 of 2020]
CD 57 of 2020 (Revised)
[Regulations 215 of 2019] Comment
s
3
High Risk
Intellectual
Property
Business
It is a Licensee which carries on an Intellectual Property
Business and in respect of which any of the following
two conditions apply:
Condition A
a) the Licensee did not create the intellectual
property asset which it holds for the purposes of
its business.
b) the Licensee acquired the intellectual property
asset either from:
(i) a Connected Person.
(ii) in consideration for funding research and
development by another person situated in
a country other than thin e State.
c) The licensee licenses the intellectual property
asset to one or more Connected Persons or
otherwise generates income from the asset in
consequence of activities performed by Foreign
Connected Persons.
Condition B:
the Licensee does not carry out research and
development, or branding, marketing and distribution
as part of its State Core Income-Generating Activity.
It is a Licensee which carries on an
Intellectual Property Business, and Licensee
meets all of the following three
requirements:
(a) The Licensee did not create the
Intellectual Property Asset which it
holds for the purpose of its business
(b) (b) The Licensee acquired the IP Asset
from either;
(i) A Connected Person; or
(ii) In consideration for funding
research and development by
another person situated in a
foreign jurisdiction; and
(c) The Licensee licenses or has sold the IP
Asset to one or more group companies,
or otherwise earns separately
identifiable gross income (e.g. royalties,
licensee fees) from a foreign group
company in respect of the use or
exploitation of the IPasset.
From the earlier definition of
“High Risk Intellectual
Property Business”, clause B
(highlighted as “RED” has been
removed and in the revised
definition the words “has sold”
(highlighted in GREEN) have
been inserted.
Based on these, a licensee
which doesn't carry out
research and development, or
branding, marketing and
distribution as part of its State
Core Income-Generating
Activity, will not be considered
High Risk Intellectual Property
Business, and sales of IP asset
will be considered High Risk IP
Business, subject to fulfillment
of other two conditions.
3. RELEVANT ACTIVITIES (CONT’D)

14. No Relevant Area CD 31 of 2019 (original)
[Regulations 100 of 2020]
CD 57 of 2020 (Revised)
[Regulations 215 of 2019]
Comments
4
5
Distribution and Sales
Business
Service Centre Business
Any of the following businesses:
• purchasing from a Foreign
Connected Person and importing
and storing in the State:
component parts or materials for
goods; or goods ready for sale, and
reselling such component parts,
materials or goods outside the
State.
• providing services to Foreign
Connected Persons in connection
with a business outside the State
• Providing services to foreign
connected persons in connection
with the business outside the state
Means a center that carry out
any of the following's
businesses:
• Purchasing from foreign
connected person component
parts or material of goods,
goods ready for sales and
selling such components
parts, material or goods etc.
• Providing Services to
foreign connectedPerson
• Providing services to
foreign connected
persons
Based on these changes,
“importing and Storing” of
goods are not required in UAE.
Simply, if the items are being
bought from Foreign
connected person and are
being sold, then it will be
subject to ESR.
Drop shipment model is now
included
Local sales are now within
purview of the definition
Entities providing services to
foreign connected persons in
connection with their business
in the UAE will now be
considered as a Service Centre
business
3. RELEVANT ACTIVITIES

15. PENALTIES
KEEP
PREPARED & CONSULTED
AND
AVOID PENALTIES

16. 4.PENALTIES
Non-Compliance
CD 31 of 2019 (original)
[Regulations 100 of 2020]
CD 57 of 2020 (Revised)
[Regulations 215 of 2019]
1 Fails to submit notification AED 10,000 – AED50,000 AED 20,000
2
Fails to submit Report
Fails to satisfy ES test
1st year: AED 10,000– AED 50,000,
Subsequent Year (after issuance of
notice): AED 50,000– 300,000
and there are chances of suspension,
revocation, or non-renewal
1st year: AED 50,000 Immediate
Subsequent Year: AED 400,000
and there are chances of suspension, revocation, or non-
renewal
3
Fails to submit any relevant
information and documentation AED 10,000– AED50,000
1st year: AED 10,000– AED 50,000,
Subsequent Year: AED 100,000– 300,000
and there are chances of suspension, revocation, or non-
renewal
4
Intentionally provide inaccurate
information, or fail to inform when
aware of inaccurate information
AED 10,000 – AED50,000 AED 50,000

17. OUR
RECOMMENDATIONS
/
VIEWS TO TAKE IT
FORWARD

18. 5. RECOMMENDATIONS
Based on the Revised in the ESR Law and Regulations,
 Businesses are required to revisit the implications of revised Law and related
Regulations.
 Businesses are advised to keep continuously monitoring the issuance of portal from
Ministry of Finance. Once portal will be introduced, notification is required to be
submitted based on the criteria mentioned in the revised Law.
 Exempted Licensees are required proper justification and reason of being exempt, so
we recommend, Exempted Licensees are required to work on the documentation
(like tax residency certificate in case the income is being taxed in a jurisdiction other
than state) required to justify that ESR is not applicable to them as they fall
exempted licensee category.

19.  Where ESR is applicable,
--Requirement of ESR test required to be met,
--Paperwork required to be completed accordingly.
 ESR report required to be submitted within 12 Months from the
end of the relevant financial year and in the report, as per revised
Law, Financial Statements are required to be submitted.
 As a conservative approach, we recommend that audit required
to be completed and audited financial statements required to be
submitted along with the report.
RECOMMENDATIONS

20. WAY FORWARD
File ESR Annual Report
Maintain documentation to prove exemption if applies
File Notification within 6 months from End of Financial Year
Assess the Applicability

21. THANK YOU
Feel free to contact us
for Consultancy