ICV Certification vs. ESR Compliance: What’s the Difference and Why They Matter in the UAE

Economic Substance Regulations (ESR) UAE Compliance

Considering the growth and expansion of businesses in the UAE two essential compliance measures have developed as requirements amongst companies wanting to have a strong presence in the local market which includes ICV Certification and ESR Compliance. Though both are necessary to success, they fulfill a different role and have different needs. In this blog, we’ll take a look at the differences between ICV Certification and ESR Compliance and what that means for businesses operating in the UAE.

Table 1: ICV Certification vs. ESR Compliance

ICV CertificationESR Compliance
PurposeDemonstrate contribution to the UAE economyEnsure companies conduct relevant activities in the UAE
Introduced byAbu Dhabi National Oil Company (ADNOC)UAE Ministry of Finance
Applicable toCompanies looking to secure government contracts or private sector partnershipsCompanies carrying out relevant activities as per Ministers Resolution (No 31) of 2019
Key FactorsLocal procurement, Emirati workforce development, and capital investmentPhysical presence, employees, expenditure, and control over core income generating activities (CIGAs)
ValidityAnnualOngoing

ICV Certification: A Path Toward Winning Government Contracts

In-Country Value (ICV) Certification is an initiative by Abu Dhabi National Oil Company (ADNOC) aimed at fostering businesses to invest back in the UAE’s workforce, supply chain and infrastructure. Since then, the ICV program has been adopted by other government bodies and big corporations as a way to select potential partners and suppliers based on their participation in local economy.

An ICV Certificate is proof of a company’s efforts to create a positive environment by local procurement, provision of Emirati workforce development, and capital investment in the UAE. An ICV score is important to secure lucrative government contracts and private sector partnerships as a company’s ICV score tends to increase a company’s chances for securing a contract.

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Economic Substance Regulations (ESR) Compliance: Creating a Real Business Presence

In 2019, the Ministry of Finance in UAE introduced its Economic Substance Regulations (ESR) ensuring that the companies performing relevant activities in UAE are economically present in the UAE. The purpose of the ESR is to put the UAE on the international standard of BEPS prevention, according to the Organisation for Economic Co-operation and Development (OECD).

Under the ESR Compliance, companies have to meet specific physical presence, employee, expenditure, and control over core income generating activities (CIGAs) of company in UAE. Companies need to prove that they have sufficient resources and decision making capacity to avoid penalties and incentives to keep their business license.

Key Differences between ICV Certification and ESR Compliance

1.     Purpose

ICV Certification is oriented at demonstrating a company’s role in UAE economy while ESR Compliance is about verifying that a company really exists in the UAE economy.

2.     Applicability

ICV Certification is applicable for governmental and private sector companies that are about to obtain governmental contracts or partnerships, while ESR Compliance is applicable for the companies that are liable to carry out such activities as per Article (3) of Ministers Resolution (No 31) of 2019.

3.     Key Factors

ESR Compliance places emphasis on physical presence, employees, expenditure, and control over CIGAs, while ICV Certification looks at local procurement, Emirati workforce development and capital investment.

4.     Validity

The ICV Certificates have to be renewed annually and are valid for one year, while the ESR Compliance is an ongoing requirement for the affected companies.

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Why ICV Certification and ESR Compliance Matter for UAE Businesses?

1.     Government Contract Opportunities

Holding ICV certification can boost a business’s likelihood of obtaining government contracts as so many government corporations desire to collaborate with suppliers that so much as ensure their commitment to the local economy.

2.     Competitive Advantage

The ICV certification and ESR compliance can help organizations in the UAE stand out in the market with credibility, reliability and dominance.

3.     UAE Laws and Regulations Compliance

Noncompliance with ESR regulations can lead to fines or suspension or revocation of business licenses if followed. It is essential that ESR Compliance be ensured for a company to stand legally in the UAE.

FAQs

Q1: Do all UAE businesses need an ICV Certificate?

A: Every business doesn’t need ICV Certificate, but it is good for those businesses who are interested in Government contracts and private sector contracts.

Q2: When do I need to renew my ICV Certificate?

A: ICV Certificates need to be renewed annually for its validity.

Q3: What activities should be considered relevant under the ESR?

A: The relevant ESR activities include banking, insurance, investment fund management, lease finance and holding company, shipping, headquarter businesses, service and distribution centre, intellectual property.

Conclusion

In conclusion, a company in the UAE will have to go through many steps when it comes to obtaining an ICV certificate and its value in order to obtain governmental contracts and show its participation in local economy. Because the process of ICV certification is complex and requires strict compliance, ICV Certificate UAE highly recommends to obtain the services of experienced ICV consultants.

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