Received Penalties For No-Submission Of ESR Report? File An Appeal
Licensees and exempted licensees are required to file the Economic Substance Notification for the financial year ended 31st December 2020 on or before 30 June 2021. The companies need to assess whether they have conducted any relevant activity in 2020 before filing the ESR notification and report. Companies that file the Notification without proper assessment face a higher risk of errors and related penalties.
However, Cabinet Resolution No 57 of 2020 has set out the provision for appealing against the penalties incurred as a result of ESR non-compliance in the UAE. Both licensees and exempted licensees need to understand the common ESR violations and how to go for an appeal if penalties are incurred. This article provides you with insights on how to deal with ESR penalties under certain situations. Let’s explore.
Filing Notification by Mistake, Penalised for ESR Non-submission
Sometimes it may happen that your company filed an ESR notification to the National Assessing Authority by mistake disclosing it has carried out a Relevant Activity. However, a further assessment reveals that the company has not conducted the Relevant Activity during the particular financial year. In this case, your company submitted a Notification believing that you conducted the activity.
A Licensee is required to submit an ESR Notification, ESR Report and meet the Economic Substance Test in the UAE. However, you decide not to submit the ESR report as you have not conducted any relevant activity. The Authority will consider you have committed the violation of not submitting the ESR report on or before the deadline. In this case, you will become liable for paying a penalty of AED 50,000 for the non-submission of the Economic Substance Report but the same can be appealed with the proper grounds and documents like audited / management certified financial statements.
Filing Wrong Relevant Activity
This situation could arise while entering the wrong activity in the first instance and later amending it on the ESR portal. For instance, you have filed Banking as the relevant activity in the first instance. This could be an unintentional error or a fault in your ESR assessment. Later, you apply for an amendment in ESR notifications to change the activity as Lease-finance.
You submitted the revised notification as a Lease-finance business but no action has been taken for the first filing. In this case, the ESR portal will have two ESR notification tabs generated under two activities. You file the ESR report for the second notification and no action is taken on the first one. The Authority will send a penalty notification for not submitting an ESR Report for the first notification but the same can be appealed with the proper grounds and documents like audited / management certified financial statements.
Wrong Assessment of Licensee Status
Imagine your company has submitted an ESR Notification initially with a specific Relevant Activity. A further assessment reveals that you are eligible for claiming Exempt Licensee status. You then file an amended ESR notification along with sufficient documents stating that your company is an Exempted Licensee.
Sometimes, the approval for the amendment may take some time. In the meantime, your ESR Report tab will be activated in the portal for the initial ESR Notification. There are chances the Authority May send a penalty notice for non-submission of ESR Report based on the first Notification.
Right of Appeal against Administrative Penalty
Article 17 of Cabinet Resolution No 57 of 2020 provides us with important clauses about an entity’s right to go for appeal against ESR administrative penalties in the UAE. A Licensee or an Exempted Licensee upon whom the National Assessing Authority has imposed a penalty may appeal against it on any of the following reasons:
(a) it did not commit the violation attributed to it
(b) the administrative penalty imposed is not proportionate to the violation
(c) the administrative penalty imposed exceeds the limit prescribed by the Authority
File an Appeal to Waive off the Penalties
If a penalty is raised due to any of the situations detailed here, it is advisable to go for an appeal. There is an Appeal Tab on the ESR portal dashboard. The National Assessing Authority May waive off the penalty if it determines it to be a genuine case. However, you should ensure that you have submitted the necessary supporting evidence along with a detailed explanation. Consult with the best ESR consultants in Dubai for filing an appeal against ESR penalties.
How Can Jitendra Chartered Accountants Help You?
ESR assessment is a vital process for the entities operating in the UAE to avoid administrative penalties arising out of non-submission of ESR Reports. What we described here are some common errors that led to the penalty of non-submission of ESR Reports in the UAE. Most companies do their own assessment resulting in errors and hefty penalties. However, the National Assessing Authority allows the companies to file an appeal in case of penalties.
The assistance of top ESR consultants in Dubai such as Jitendra Chartered Accountants ( JCA) could have helped the companies to avoid errors in assessment thereby saving form penalties. JCA has highly qualified auditors and business setup consultants who possess sound knowledge of the ESR rules. We ensure that our clients’ ESR assessment is accurate without any loophole for incurring penalties. And in case of penalties, we would help the companies file an appeal properly. JCA also helps the companies by assessing whether they can meet the UAE Economic Substance Test, providing recommendations if the companies fail to meet the ESR test and helping them file the annual ESR Notification and ES Report without any error.