Beware of ESR in the UAE to avoid penalties
As part of the UAE’s commitment as a member of the OECD Inclusive Framework, and in response to an assessment of the UAE’s tax framework by the European Union (“EU”) Code of Conduct Group on Business Taxation, the UAE introduced a Resolution on the Economic Substance (Cabinet of Ministers Resolution No.31 of 2019, the “Regulations”) on 30 April 2019. Guidance that provides further clarity on the application of the Regulations was issued on 11 September 2019
Adhering to UAE’s Economic Substance Regulations (ESR) is now a ‘must do’ reality facing business owners in the region, amid the challenging financial circumstances brought on by the COVID-19 pandemic.
New regulations, which were implemented in the UAE for fiscal years commencing January 1, 2019 and onwards, were announced by the government the last year and encompasses several industries in the country.
Ensure your business abides by the new Economic Substance Rules (ESR) by June end and avoid huge penalties.
But with deadlines fast approaching – it has off late been and henceforth will be tackled with a renewed sense of urgency by many business owners in the UAE.
What are economic substance regulations?
The Economic Substance Regulations, or ESR, was issued by the UAE and is aimed at curtailing harmful tax practices and closely tracks the global standard set by the OECD (Organisation for Economic Co-operation and Development).
As the UAE is a member of the OECD framework, in response to an assessment of the UAE’s tax framework by the European Union (EU) Code of Conduct Group on Business Taxation, the UAE introduced a resolution on Economic Substance on April 30, 2019.
What are the upcoming deadlines to keep in mind?
The Emirates’ Ministry of Finance has given a timeline to the various regulating authorities for Free Zone and mainland companies in the UAE.
This is to ensure the ESR Notifications by all the companies whose financial year ends on December 31, 2019 should be done by no later than June 30, 2020 and the ESR Return submission be done by no later than December 31, 2020.
Given the deadline for doing ESR Compliances for all businesses in the UAE is just a few weeks away, it would be prudent for the businesses to get started on it right away, if not already done.