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

The deadline for filing Economic Substance Regulations (ESR) reports for UAE enterprises that engaged in any of the nine Relevant Activities during the relevant year is approaching. Licensees and exempted licensees with a fiscal year ending on June 30, 2021, must file an ESR Notification in the UAE by December 31, 2021. Similarly, licensees whose fiscal year ends on December 31, 2021, must file an ESR Report by March 31, 2022. Failure to ensure ESR compliance, including passing the ES test, will result in severe penalties; however, by consulting with ESR consultants in Dubai, UAE, this can be avoided.

This article highlights the important actions that enterprises that are subject to an obligation must perform right away to ensure compliance and avoid ESR administrative penalties in the UAE. The clock is ticking, and companies with an ESR duty must act quickly. Read on to learn about the immediate activities that must be taken:

1. Conduct a Self-Evaluation

Companies must begin a self-assessment right once to see if they engaged in any of the nine Relevant Activities during the reporting period. 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 are the nine Relevant Activities. Gather relevant data to produce an ESR Notification if the organization has engaged in any of the nine Relevant Activities. ESR consultants in Dubai can assist business owners in preparing an effective ESR notification.

2. Determine whether a licensee or an exempted licensee

In the UAE, business owners must select how they are characterized in terms of ESR. They must determine whether they are an ESR licensee or an expected licensee in the UAE. A licensee is required to submit both ESR Notification and ESR Report under Cabinet Decision No 57 of 2020, however, an exempted licensee is just required to file ESR Notification. Exempted licensees must, however, prove their exemption status by presenting the required paperwork. Any of the following are examples of exempted licensees:

  1. a) an investment fund
  2. b) Companies that are tax residents outside the UAE
  3. 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
  4. d) Branches of foreign companies whose Relevant Income is taxed outside the UAE

3. What is the Importance of Documenting Exempted Licensee Status?

If an exempted licensee fails to demonstrate its exempt status with required documentation, it will be considered a licensee. In this scenario, the exempted licensee must comply with all licensee responsibilities, including submitting the ESR Report in the UAE. Business owners, on the other hand, will not submit the ESR Report because they are exempted, licensees. This will be considered a non-compliance by the National Assessing Authority, and a penalty will be imposed for failing to submit an ESR Report. Non-submission of the ESR report will result in a penalty of AED 50,000 for the first offense and AED 400,000 for the second offense in the following year. To prevent administrative penalties, engage with ESR professionals in Dubai.

4. Look for any unnoticed relevant activity

To ascertain their Licensee status, business owners should check beyond their trade license. According to their trade license, a company called XXY does trading activity in the UAE. The corporation does, however, receive interest from its international group companies. The corporation is not required to meet ESR responsibilities under the trade license. However, because it collects interest from foreign group entities, the corporation engages in a Relevant Activity of Lease-Finance industry. As a result, XXY is required to file an ESR Notification in the UAE. ESR experts in Dubai can assist businesses in determining their licensee status.

5. Economic Substance Test in the UAE

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

6. Contents of Economic Substance Notification in the UAE

An ESR Notification should include the following information, according to Article 8 of Cabinet Decision No 57 of 2020:

  • 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 in the UAE that are subject to ESR must file an ESR Notification and We are one of the leading ESR compliance service suppliers in the UAE. Alya can assist businesses in determining their applicability and filing annual notices and reports. If a penalty is incurred, Alya Auditors can assist the companies by providing ESR penalty appeal services. Call us right now to assure ESR compliance at a low cost.