Appeal User Guide for Economic Substance Regulations

The Cabinet of Ministers Resolution Number 57 of 2020 was issued which concerned the Economic Substance Requirements on 10 August 2020. Under which the Federal Tax Authority was assigned as the National Assessing Authority.

The Federal Tax Authority tasks involve;

  • To assess whether a Licensee has met the standards of the Economic Substance Test;
  • To charge ESR penalties by the regulatory authorities where applicable; and
  • To inquire and decide on ESR appeals.

The Federal Tax Authority has a dedicated e-mail and section on its website for Economic Substance Regulations. Furthermore, Federal Tax Authority has issued the Appeal Guide for Economic Substance Regulations on the procedure of appealing against the decisions of ESR penalties.

The Objective of  Appeal Guide for Economic Substance Regulations

The ESR appeal requires the Licensee or the Exempted Licensee to appeal to the National Assessment Authority due to the decision imposed to charge ESR penalty on it for any of the subsequent reasons:

  • the violation ascribed to it was not executed;
  • The ESR penalty levied is not proportional to the violation executed;
  • The ESR penalty levied surpasses the limit imposed hereunder.

Appeal Guide for Economic Substance Regulations

As ESR Notifications and ESR Reports are filed through the Ministry of Finance portal. The Licensees and Exempted Licensees already have their accounts on the Ministry of Finance portal. In order to submit their ESR appeal they are required to log in to their accounts.

For each ESR penalty, a separate  ESR appeal must be made.

Deadlines

Appeal Guide for Economic Substance Regulations provides that the deadline for submitting the ESR Appeal and paying the ESR Penalty is 40 working days starting from the date on which the ESR Penalty is imposed.

The ESR Penalty deadline stops as soon as the ESR Appeal is submitted, and it will continue when the ESR appeal is rejected or withdrawn relatively. When the ESR appeal is completely approved, the deadline for submitting the ESR Appeal and paying the ESR Penalty will not continue.

The Federal Tax Authority decides on the ESR Appeal that is submitted within 40 working days and eventually notifies the Licensee and Exempted Licensee about their decision within 5 working days starting from the date on which the decision was issued.

Submission of Supporting Documents on the Request of National Assessing Authority

As per the new Economic Substance Requirements, the Federal Tax Authority, in collaboration with the Regulatory Authorities, has the responsibility to request for the further information, documents, and data required under the Economic Substance Regulations.

When requested, the Licensee and Exempted Licensee must submit the requested documents within 5 working days starting from the date when the request was made; else, the ESR Appeal will be canceled.

The deadline for the Federal Tax Authority re-evaluation stretches to further 40 working days after the submission of the supporting documents. The Licensee and Exempted Licensee who submitted the ESR Appeal is notified within 5 working days starting from the date on which the decision was issued.

Also Read : ESR for holding Company Business in UAE

Time Framework

  • Submit For ESR Appeal

40 working days starting from the date on which the ESR Penalty is imposed

  • Submission of Supporting Documents on the Request of FTA

5 working days starting from the date when the request was made

  • Decision for ESR Appeal

40 working days after the submission of the supporting documents

  • Inform Licensee and Exempted Licensee about the Decision

5 working days starting from the date on which the decision was issued

  • Final Deadline to Pay the ESR penalty

40 working days from date ESR penalty is imposed

Economic Substance Regulations Support Channel for ESR appeal

The Licensee or Exempted Licensee sometimes appeal for the modification in the notification or appeal to return the ESR Appeals for correction. The Licensee or Exempted Licensee can go along the appeal by e-mailing their authorized name, their Regulatory Authority as well as the Case ID to FTAESR@tax.gov.ae.

In case of the technical issues related to the Ministry of Finance portal e-mails should be sent to ESRsupport@cbrain.com.

ESR Penalties

The subsequent  ESR Penalties will be levied by the Federal Tax Authority:

  1. Unable for ESR Notification filing within 6 months from the end of the fiscal year, ESR Penalties levied will be AED 20,000.
  2. Unable for ESR Reporting within 12 months from the end of the fiscal year, ESR Penalties levied will be AED 50,000.
  3. Unable to meet Economic Substance Requirements, ESR Penalties levied will be AED 50,000.
  4. Repetitively executed one of the two violations mentioned by National Assessment Authority during the subsequent fiscal year, ESR Penalties levied will be AED 400,000. The listed ESR penalties can be levied within 6 years starting from the date of executing the violation, unless the applicant executed a deceitful act that disabled Federal Tax Authority to impose the listed ESR penalties within the specified period.
  5. Giving inaccurate information, ESR Penalties levied will be AED 50,000.
    The ESR penalty for the violation of this act can be levied within 12 months starting from the date on which the Federal Tax Authority came to know, unless the applicant executed a deceitful act that disabled Federal Tax Authority to impose the listed ESR penalties within the specified period.
  6. Further ESR Penalties such as deferring, vacating, or not restoring the Licensee’s or Exempted Licensee’s commercial license can also appeal.

Therefore, it is strongly recommended that all the Licensees or Exempted Licensees should examine their authorities and make all necessary measurements in order to comply with the Economic Substance Requirements. Moreover, non-compliance should be reformed.

If the ESR Penalty rises without executing violation, or it is not in proportion to the violation committed, or it surpasses the limited time period, it is strongly recommended that an ESR Appeal must be made without further delay.  Call us here in  Economic Substance Regulations  today  to file your ESR Appeal.