Economic Substance Regulations Filing in the UAE

ESR filing in UAE is a requirement of Economic Substance Regulations UAE for all the businesses that fall under the scope of ESR. The main aim of filing the ESR notification is to let the regulatory authorities collect and govern some significant pieces of information about the licensees and the relevant activities that they have been performing throughout the year. All the required information is essential to be provided by the licensees. Also, filing notification is a prerequisite to ESR reporting and for the ESR test.

The businesses need to carefully determine whether they fall under the scope of ESR or under which category they need to comply with the regulations. According to the guidance provided by the Economic Substance Regulations, filing notification is mandatory for a corporate organization (for example, private or public joint-stock company, limited liability company, etc) and a partnership entity (for example, general partnership, limited liability partnership, etc) only if they execute one or more of the relevant activities within a particular year.

In the UAE, a business that executes one or more than one of the relevant activities within a particular financial year is termed a Licensee. If a business in the UAE is performing any of the relevant activities but is free from certain ESR requirements is called an Exempted Licensee. No matter whether a licensee is exempted or not, it is mandatory to file an ESR notification.

Read also : Adequate or Appropriate Economic Substance in UAE

Economic Substance Regulations Filing

ESR filing in UAE is mandatory for all the licensees and exempted licensees and every licensee needs to file a notification to the particular authority that regulates it within its registered jurisdiction. Regulatory authorities are specific to the different relevant activities. For instance, if a licensee is performing a banking business in the UAE, it should file a notification to the UAE Central Bank which is a regulatory authority for all the banking businesses in the UAE as per the Cabinet Resolution no. 57. The following information would generally be required to include in the notification;

  • The licensees shall mention the relevant activities that they execute.
  • The licensees shall mention whether the relevant activity they execute generates any income.
  • The licensees shall mention the financial year-end date of their business.
  • The licensees shall include all the information required by the Regulatory Authorities.

ESR Filing UAE by Exempted Licensees

Since exempted licensees are also required to file a notification, they must provide enough evidence to support their exempted status in all the activities in which they consider themselves to be exempted. In case a licensee fails to prove itself as exempted or lacks enough evidence, it will not fall under the scope of exemption as per ESR in UAE. Such a licensee will then be required to fulfil all the ESR requirements and will need to submit a report like other licensees. Also, it will be required to meet the ESR test.

You should Know : Post Submission Problems and Solutions of ESR Notifications

Does a licensee need ESR filing if it only executed an activity for a limited period of time?

It does not matter if a licensee performed a relevant activity for a month in a year or for the whole year, it always needs to file a notification if one or more than one of the relevant activities were executed. Whatever activity has been performed within one financial year, needs ESR filing and reporting.

Can multiple licensees file a single notification?

Many businesses in the UAE work together in the form of a group to make the accounting process easy or for VAT purposes. However, when it comes to filing a notification, each licensee needs to file a separate notification. No matter if all the licensees working together in a consolidated group execute the same relevant activity, they still need to file a notification independently.

Do different branches of a business need to file the notification?

No, it is not required by the different branches of the same business to file notifications independently. Branches in the UAE do not have a separate legal identity but they are just the extensions of a head office or parent branch. For this reason, only the head office is responsible for filing the notification and submitting the yearly report including all the activities that have been performed in the parent branch and other branches.

Is there any deadline to file a notification?

Yes, there are proper deadlines according to the ESR regulations and businesses need to comply with these deadlines. All the licensees are supposed to file a notification six months before the financial year-end date. For example, if the year-end date of a business is 31 March, then the notification must be filed before 30 September or if the year-end date of a business is 31 December, then the notification must be filed before 30 June, etc.

Where to Submit the Notification?

The submission of notification is done electronically. A portal is launched by the Ministry of Finance to make the filing process facilitated. In addition to the filing of notification, ESR reports and other important pieces of information are also submitted through this portal only. The Ministry of Finance also publishes the rules and regulations and the procedures of using the portal when the portal is launched.

What if a Business is about to be Liquidated?

If a licensee is performing a relevant activity within the year in which it would be liquidated, it still needs to file the notification and submit the report to the regulatory authority for all the activities that have been performed before the liquidation of the business. All the ESR requirements shall be satisfied in this case.

What if a Business Fails to File a Notification?

A business whether it is a licensee or exempted licensee needs to file a notification to the relevant authority. If such a business fails to file a notification within the due date will be subjected to a penalty of 20,000 AED.

What if someone enters incorrect information?

The regulatory authorities require important information from the licensee such as the relevant activity that it performed and the income that the activity generated and some other information. If a licensee tries to provide the regulatory authority with incorrect information about the business, it would be subjected to a penalty of 50,000 AED. Also, if a licensee claims to be exempted when it is originally not exempted, it would fail the ESR test for the relevant year.

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