Amendments to UAE ESR
The Cabinet of Ministers issued Decision No. 98 of 2024 (Decision), introducing amendments to Cabinet Decision No. 57 of 2020 on Economic Substance Regulations in the UAE (ESR). The Decision limits the application of the ESR to financial years starting on 1 January 2019 and ending on 31 December 2022.
Thus, effectively ESR shall no longer be applicable to Licensees which are in scope of the regulations for financial years starting on or after 1 January 2023.
Furthermore, the Decision provides for the cancellation of all administrative penalties that have applied under the ESR for years ending after 31 December 2022. If any such penalties have been imposed, they shall be refunded, and disputes raised in this regard shall be resolved.
It remains ambiguous whether this will occur automatically, or that affected taxpayer would need to actively approach the FTA to resolve these issues.
Conclusion
The Decision brings useful relief to businesses operating in the UAE.
Businesses that have been penalized under the ESR for financial years starting on or after 1 January 2023 and yet to see their issue resolved should consult with their tax advisor for further guidance.
