On January 1st, 2019, the Economic Substance Regulation in Dubai (ESR) went into effect. Companies must comply with the ESR standards by taking the necessary actions.
• Adherence to notification requirements • Submitting a yearly drug report.
Because ESR is regulated by the appropriate regulatory authorities, there are a few minor variations in how ESR returns must be filed. This covers various due dates, documentation needs, and associated fines for non-compliance.
The UAE enforces the Economic Substance Regulations (ESR) on domestic enterprises operating there, including those operating in free zones and those involved in any of the listed “related activities.” These businesses are required to submit notices of economic substance, together with an initial description of the activities, to the regulatory authorities. Before the company can submit an economic substance report, this notification must be made.
FQA Filling ESR Notification
1. How to file an Economic ESR?
Before ESR was implemented in the UAE, several businesses profited from the tax-free status. To prevent paying excessive taxes to the government of the original country, they relocated their profit centers to the UAE. This was a tactic some businesses employed to evade taxes while disregarding the economic advantages the UAE offers. ESR in the UAE prevents such conduct by enabling businesses to alert them through their pertinent activity. When businesses carry out the tasks listed in their trade license and have a typical UAE business arrangement, that activity is relevant.
2. What is the deadline for filing an ESR Notification?
The Economic Substance Regulations in Dubai (ESR) of the United Arab Emirates (UAE) impose annual filing prerequisites on specific domestic and free zone legal entities that carry out one or more of nine relevant activities (RA). These organizations are termed to as “licensees.”
• Regardless if the licensee is exempted from the ESR or money derived from RA, notification that the company performs RA must be provided within six months of the end of the fiscal year (FY).
• If money from RA was received during the reporting period and the licensee was not excluded from the ESR, a report containing specific business information should be provided within 12 months after the end of the fiscal year.
The following table lists the approaching due dates for a number of FY ends:
|31 Dec 2021||30 Jun 2022||31 Dec 2022|
|31 Mar 2022||30 Sep 2022||31 Mar 2023|
|30 Jun 2022||31 Dec 2022||30 Jun 2023|
|30 Sep 2022||31 Mar 2023||30 Sep 2023|
|31 Dec 2022||30 Jun 2023||31 Dec 2023|
All legal entities are urged to ascertain their upcoming ESR filing responsibilities as soon as possible for any finished FYs, and to take the required actions to make sure filings are formed within the deadlines viable and that all required supporting documentation is available at the time of filing.
For financial penalties in case of failure to give a notification for (AED 20,000), report for (AED 50,000), give correct or complete information (AED 50,000), and establish enough economic substance in Dubai are among the sanctions for noncompliance with the ESR (AED 50,000 for the first failure and AED 400,000 for the second failure for the second consecutive). Information sharing with specific foreign authorities is one example of non-monetary sanctions. FTA, the Federal Tax Authority, has started conducting audits.
3. What is the Key ESR considerations before the end of the Financial Year?
The following ESR issues should be taken into account by all legal entities, and appropriate action should be made before the conclusion of an FY.
• The entity must evaluate whether it carried out any of the nine RAS throughout the time and made money from them. This phase is crucial since it will aid in determining an entity’s particular ESR compliance needs for the FY.
• Entities receiving income from RA throughout the FY shall assess their compliance with the appropriate ESR tests, including the oriented and managed test, the sufficient test, and the test for core income-generating activities (CIGA).
• After the review mentioned above, organizations shall take all required actions by the end of the FY to address any potential noncompliance issues (assure submission with all viable ESR tests).
• After the review mentioned above, organizations must take all required actions by the end of the FY to address any potential noncompliance issues (assure submission with all applicable ESR tests).
• Concerning the CIGA test, entities must make sure that they have oversight and control over any outsourcing arrangements that can be proven in the FY, such as by written contracts or other documentation.
• Licensees must compile pertinent supporting documentation pertaining to their ESR submission duties in light of the FTA ESR audits and preserve them on file. If chosen for an audit, Licensees have only five working days to deliver all necessary documentation to the FTA (evidencing that the ESR tests are met).
The accompanying (non-exhaustive) advice is meant to give entities the chance to take any essential steps toward ESR compliance before it’s too late.
The Ministry of Finance’s (MoF) ESR homepage is specifically designated. This link provides access to the legislation, guidelines, notice, and report formats as well as a connection to the ESR Portal.
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