In the context of economic globalization, the UAE, as an important financial and commercial center in the Middle East, has continuously strengthened economic supervision in recent years to meet international standards. Economic Substance (ESR) reporting and Ultimate Beneficial Owner (UBO) filing are two important compliance requirements implemented by the UAE government. These measures are aimed at improving economic transparency, combating money laundering and terrorist financing activities, and ensuring the UAE's credibility in international economic cooperation.

Table of Contents

1. UAE ESR (Economic Substance Regulation) 2. UAE UBO (Ultimate Beneficial Ownership) Registration 3. The connection and difference between ESR and UBO

1. UAE ESR (Economic Substance Regulation)

The UAE introduced the Economic Substance Regulations (ESR) in 2019 to comply with the requirements of the Organization for Economic Cooperation and Development (OECD) and international tax transparency. The regulations require companies with activities in certain areas to prove that they have substantial economic activities in the UAE.

Scope of application:

ESR mainly applies to companies registered in the UAE with the following nine types of "relevant activities":

Banking

Insurance

Investment fund management

Leasing and financing

Headquarter services

Shipping business

Holding company business

Intellectual property (IP) business

Distribution and service center business

Main requirements:

Economic substance test: The company must prove that it has sufficient physical presence in the UAE, including office space, employees, operating expenses, etc.

Reporting obligations: The company needs to submit an annual report to the relevant regulatory authorities to explain whether its activities comply with the ESR requirements.

Compliance deadline: The company must complete the reporting and testing within the specified time, otherwise it may face fines or other penalties.

Exemptions:

Certain companies (such as UAE tax resident companies or companies subject to foreign tax jurisdictions) may be exempted from some ESR requirements.

2. UAE UBO (Ultimate Beneficial Ownership) Registration

UBO (Ultimate Beneficial Owner) filing is a regulation introduced by the UAE to strengthen anti-money laundering (AML) and counter-terrorism financing (CFT) measures. The requirement is to ensure that companies transparently disclose their ultimate beneficiaries.

Scope of application:

All companies registered in the UAE (including free zone companies and offshore companies) must comply with the UBO filing requirements unless they are specifically exempted.

Main requirements:

Identify the ultimate beneficiary: The ultimate beneficiary is an individual who directly or indirectly holds more than 25% of the company's shares or voting rights, or an individual who exercises effective control over the company through other means.

Filing information: The company needs to submit the following information to the registration authority:

Details of the ultimate beneficiary (name, nationality, ID, address, etc.).

Details of the company's shareholders or partners.

Details of the company's managers or directors.

Maintaining the register: The company must keep the UBO register at its registered address and ensure that the information is updated in a timely manner.

Compliance deadline: The company must complete the UBO filing within the specified time, otherwise it may face a fine (usually 100,000 to 1 million dirhams) or other penalties.

3. The connection and difference between ESR and UBO

Connection: Both are regulations introduced by the UAE to enhance transparency and compliance, and are applicable to companies registered in the UAE.

Difference:

ESR focuses on the economic substance and tax compliance of companies.

UBO focuses on the transparency of the company's ownership structure and anti-money laundering compliance.