October 2024 / United Arab Emirates

On October 14, 2024, the Ministry of Finance of the United Arab Emirates (MOF) announced significant changes to the Economic Substance Regulations (ESR) following the enactment of Cabinet Decision No. 98 of 2024. This decision amends Cabinet Decision No. 57 of 2020, dated August 10, 2020, relating to economic substance requirements, making substantial revisions to the existing regulations. These changes represent a step forward in strengthening the country’s competitiveness, aligning it with the new federal Corporate Tax framework.

Key Updates:

• Cessation of ESR Obligations: Starting from the financial year beginning after December 31, 2022, companies classified as "Licensees" will no longer be required to submit Economic Substance Notifications or annual Economic Substance Reports. However, the ESR will continue to apply for financial years from January 1, 2019, to December 31, 2022.
• Cancellation of Penalties: Administrative fines imposed for periods after December 31, 2022, will be annulled. Additionally, any fines that have already been paid will be refunded, although the refund mechanism will be communicated later.

• Compliance with Tax Regulations: Even in the absence of ESR obligations from 2023 onwards, companies must ensure compliance with the federal Corporate Tax regulations, particularly for free zone entities seeking to benefit from the preferential 0% tax rate.

Considerations for Businesses:

• Review of Past Compliance: Companies with ESR obligations from 2019 to 2022 should ensure they have accurately submitted all required notifications and reports and maintained sufficient documentation to demonstrate their economic substance in the UAE, as the Federal Tax Authority (FTA) retains the right to audit documents for six years.

• Adjustment to Corporate Tax: Free zone entities must evaluate whether they meet the economic substance requirements to continue benefiting from tax exemptions. This includes demonstrating key economic activities, maintaining adequate resources, and employing qualified personnel.

With the UK’s upcoming 2025 tax reform, many High-Net-Worth Individuals (HNWI) are exploring new options for establishing tax residency abroad. London, historically attractive for the tax advantages granted to non-domiciled (non-dom) residents, will see these benefits on foreign income gradually phased out. This change has HNWIs considering countries that offer solid tax benefits and stable environments for relocating their residency.

Switzerland: A Strategic Choice for Stability and Quality of Life

Switzerland continues to draw interest with its advantageous tax system, offering options such as an annual lump-sum taxation for non-domiciled residents in certain cantons. This framework allows HNWIs to benefit from competitive tax rates in a highly stable political environment with a top-tier quality of life, including exceptional healthcare and education systems. Switzerland also stands out for its natural beauty and multicultural setting, fostering an inclusive environment with unlimited Schengen access and an extensive network of treaties to prevent double taxation.

United Arab Emirates: Zero Taxation and a Cosmopolitan Environment

The UAE is one of the most attractive choices for HNWIs due to the complete absence of personal income, inheritance, or gift taxes, with no individual tax declarations required. Cities like Dubai and Abu Dhabi offer excellent healthcare infrastructure and a high standard of living within a cosmopolitan environment that blends tradition with modernity. With flexible visa options and a strategic location providing easy access to multiple international markets, the UAE also offers unparalleled investment opportunities.

Hong Kong: Tax Benefits and Access to the Chinese Market

Hong Kong ranks among the most sought-after destinations for investors and HNWIs due to its favourable tax system, which includes no capital gains, inheritance, or gift taxes. Individual income tax rates are among the world’s lowest, and Hong Kong’s unique position allows easy access to mainland China. Its economic dynamism and robust financial institutions make it ideal for those seeking a competitive environment with extensive networking and business development opportunities, bolstered by numerous treaties to avoid double taxation.

Evaluating the Right Jurisdiction: Final Considerations

Choosing the ideal jurisdiction depends on each individual’s personal and financial needs. Switzerland, the UAE, and Hong Kong each offer targeted solutions for tax planning and lifestyle, although their residency requirements and access criteria vary. Carefully considering all factors before making a decision is essential

If you’d like to delve into the specifics, download our complete guide “New Relocation Opportunities for HNWI,” where you’ll find practical information and targeted advice for each destination.