What are ESR penalties for providing inaccurate information?

The UAE Cabinet Resolution established administrative fines for numerous economic substance regulations. The number of fines for infractions committed by both Licensees and Exempted Licensees has grown as a result of the new Ministerial Decision of 2020. The main breaches include giving false information, ceasing to function to submit an ESR notification and report, and failing to enact the UAE’s ESR test. Below, we will thoroughly expound on the cabinet’s resolution in regard to ESR offences and penalties for providing inaccurate information. 

Penalties for providing inaccurate information as per the cabinet resolution

If the licensee or exempted licensee is aware of the inaccuracy within the information at the time of provision and still gives inaccurate details, a penalty of 50,000 AED will be imposed upon him by the Regulatory Authority or National Assessing Authority (Federal tax authority, in this case). Hence, it is important to inform the respective authorities timely about any inaccurate data to avoid statutory penalties. In the case of entities failing to provide the required explicit information, a penalty that ranges from 10,000 to 50,000 dirhams for the first time and 100,000 to 300,000 dirhams for the second consecutive failure will be imposed. 

Once the National Authority finds out errors in the given information, in a respective financial year, it will inform the entities about the penalty through an ESR penalty email. The notification contains the details of error detection, the reasoning behind imposing a penalty, the amount of administrative penalty, and the due date. The federal tax authority is responsible for assessing provided information. They infer whether the licensee or exempted licensee has met up the economic regulation test or not. The federal tax authority is allowed to evaluate information within six years. They cannot exceed it unless there is a case of corruption, gross oversight, or misrepresentation. If there is continual non-compliance by an entity, the Federal tax authority may suspend or ban it in that case. 

Read more: Offenses and Penalties for Failure to Meet the Economic Substance Test

Penalty notification content 

After committing a violation of the economic substance regulations, the National assessing authority notify the licensee and exempted the licensee regarding that particular offense with the following details:

  • It has been inferred by the National Assessing Authority that the violation in the relevant financial year is detected. 
  • The core reason behind levying ESR penalties.  
  • The total amount of sanction that entity has to pay.
  • The due date of an administrative penalty should not be less than thirty days after the allotment of notice.  

How are ESR consultants helpful?

A plethora of business entities succumbs to sanctions and penalties of non-compliance to the ESR laws and standards because of ignorance of the ESR procedures. Further, businesses often fall into the non-compliant trap due to gross misunderstandings of what constitutes a Licensee/Exempted Licensee. To ensure that the data in the notification is precise, firms should endeavour on meeting the set deadline. The above casualties obligate businesses to outsource expert ESR consultation, to ensure and enforce the accuracy of the provided information and timely detect any possible error. If your firm is found non-compliant, top ESR consultants can seamlessly assist you in fulfilling the legal essential requirements of the ESR test and ESR notification. 

Read more: How to File ESR Notification in UAE

What are the possible reasons for incurring penalties under Economic Substance Regulations?

Primarily, failure to specify the applicability of ESR, omissions resulting in false detection of the financial year, failure to follow the given deadline, and delayed submission of additional information. Moreover, failure to understand the status of the business and making submissions likewise can also be a reason.

How can you appeal an ESR-imposed penalty?

Companies can present their cases before the federal tax authority. Thus firstly, you have to log in to the Ministry of Finance portal. There, you will find an option for ” File appeal”. Click on it and enter a simple explanation of your intent for appealing. Keep pressing next after filing all the required tabs and review the attached documents and explanation. Lastly, click on submit and make sure to attach supporting documents for your claim.

Choose the best ESR consultants

To ensure the smooth functioning of your business in the UAE, compliance with Economic Substance Regulations is a significant requisite. To enforce these regulations effectively and efficiently, it is highly imperative to avail expert ESR consultation. Top ESR consultants in Dubai enforce full compliance with the set Economic Substance Regulations.