The United Arab Emirates (UAE) cabinet has relaxed the obligation on legal entities to demonstrate that they carry out substantial economic activities within the jurisdiction.

The obligation was introduced under the Economic Substance Regulations 2019 to comply with international initiatives against 'harmful tax practices', meaning the shifting of profits to so-called 'brass plate' shell companies in low-tax jurisdictions. It required entities to file notifications of their economic activities within six months of the end of their financial year or face penalties between AED20,000 and AED400,000. Some entities also had to provide a further report within 12 months of the end of each financial year.

Now, under Cabinet Decision No.98 of 2024 gazetted on 16 September 2024, these reports are no longer required for financial years commenced after 31 December 2022. Penalties will not be imposed on any entities that did not observe economic substance regulation filing deadlines relating to financial years started after 31 December 2022. The Federal Tax Authority will refund any penalties already paid for those financial years, although the mechanism for claiming refunds is not yet published.