ESR Compliance in UAE: Deadline Alert for Submissions for FY 2020 & 2021

Economic Substance Regulations (ESR) report filing deadline is approaching for UAE companies that have conducted any of the nine Relevant Activities during the relevant year. Licensees and exempted licenses whose financial year ended on 30 June 2021 should file ESR Notification in the UAE by 31st December 2021. Similarly, Licensees whose financial year-end falls on 31st December 2020 should file ESR Report before 31st December 2021. Failing to ensure ESR compliance, including passing the ES test, will lead to hefty penalties, but it can be avoided by consulting with ESR consultants in Dubai, UAE.

This article discusses key things businesses under obligation must immediately undertake to ensure compliance as well as to avoid ESR administrative penalties in the UAE. The clock is ticking and businesses under ESR obligation must act fast. Read ahead to understand immediate actions to be taken:

Conduct a Self Assessment  

Companies must immediately start a self-assessment to determine whether they have conducted any of the nine Relevant Activities in the reporting period. The nine Relevant Activities are Banking, Insurance, Lease-Finance business, Investment Fund Management business, Holding Company business, Headquarters business, Shipping business, Intellectual Property (IP) business and Distribution & Service Centre business. If the company has carried out any of these nine Relevant Activities, gather relevant data to prepare an ESR Notification. Business owners can seek the help of ESR consultants in Dubai to prepare an effective ESR notification.

A Licensee or Exempted Licensee? 

Business owners must determine how they are defined as per ESR in the UAE. They should assess whether they are a licensee or an expected licensee under ESR in the UAE. As per Cabinet Decision No 57 of 2020, a licensee is required to submit both ESR Notification and ESR Report, but an exempted licensee only need to file ESR Notification. However, the exempted licensees should substantiate their exempted status by submitting relevant documents. An exempted licensee can be any of the following:

a) an investment fund

b) Companies that are tax residents outside the UAE

c) Entities completely owned by one or more residents in the UAE. However, they should not be a  part of any MNC group and carries out business activities only in the UAE

d) Branches of foreign companies whose Relevant Income is taxed outside the UAE

Why it is Important to Substantiate Exempted Licensee Status? 

An exempted licensee will be considered as a licensee if it fails to substantiate the exempted status with relevant documents. In such a case, the exempted licensee must meet the obligations of a licensee including the submission of the ESR Report in the UAE. However, business owners will not submit the ESR Report as they come under exempted licensee status. The National Assessing Authority will consider this as a non-compliance and will impose a penalty for not submitting ESR Report. Non-submission of the ESR report will lead to a penalty of AED 50,000 for first-time and AED 400,000 if the violation is repeated in the next year. Consult with ESR consultants in Dubai to avoid administrative penalties.

Check for Any Hidden Relevant Activity 

Business owners should look beyond their trade license to determine their Licensee status. For example, a company named XXY conducts trading business in the UAE as per their trade license. However, the company also earns interest from its foreign group companies. As per the trade license, the company is not required to meet ESR obligations. However, the company carries out a Relevant Activity of Lease-Finance business as it earns interest from foreign group entities. Hence, XXY must file ESR Notification in the UAE. ESR consultants in Dubai can help the companies assess their licensee status.

Economic Substance Test in the UAE

The Economic Substance Test in the UAE requires Licensees to demonstrate the following:

a). The Licensee is being directed and managed in the UAE

b). The Licensee conducts the relevant Core Income Generating Activities (CIGAs) in the UAE

c). Licensee has an adequate number of employees and an adequate number of physical assets and expenditure in the UAE

Contents of Economic Substance Notification in the UAE 

As per Article 8 of the Cabinet Decision No 57 of 2020, an ESR Notification should state the following information:

  • Relevant Activity carried out in the given Financial Year
  • A statement of whether the company has earned any Relevant Income during the given Financial Year
  • Date of commencement and end of  Financial Year
  • Any information/ document demanded by the Regulatory Authority
  • Documents to substantiate exempted status of exempted licensees

Hire the Best ESR Consultants in Dubai, UAE 

Companies that fall within the scope of ESR in the UAE are required to file ESR Notification and ESR Report before the deadline. None-compliance of meeting ESR obligations will lead to hefty penalties. This means companies need to carry out robust assessments every year to avoid penalties. The best way to carry out ESR assessments in the UAE is by availing the assistance of ESR consultants in Dubai such as Jitendra Chartered Accountants (JCA). JCA is one of the leading providers of ESR compliance services in the UAE. JCA can help the companies properly assess their applicability and file annual notifications and reports. JCA can also help the companies by providing ESR penalty appeal services in case any penalty is incurred. Call us today to ensure ESR compliance at affordable rates.