According to the Cabinet of Ministers Resolution Number 31 of 2019, the Economic Substance Regulations were issued by United Arab Emirates on 30 April 2019 and were amended on 10 August 2020 by Cabinet of Ministers Resolution Number 57 of 2020. ESR in UAE maintains as well as illustrate the economic existence of onshore and free zone companies who practice the Relevant Activities in the United Arab Emirates that are relative to the Economic Substance Test.
Article 6.7 of the Ministerial Decision 100 shows that the submission of ESR Notification Form is to be done electronically on the Ministry of Finance Portal. The time frame for the submission of notification is within six months from the end of the Financial Year. Moreover, Article 4.4 of Ministerial Decision 100 of the Economic Substance Regulations shows that the Licensees or Exempted Licensees who have submitted an ESR Notification Form directly to their respective Regulatory Authorities should file electronically their Notification again on the Ministry of Finance Portal once it is available.
ESR Notification Form
The ESR Notification Form mainly consists of following information:
- Licensee Details
- Branch Details
- Reportable Period
- Relevant Activities
- Ownership Information
The first section of ESR Notification Form consists of the Licensee details which includes;
- The name of Licensee
- Commercial License, Trade License or Permit Number of the Licensee
- Financial year end or the accounting reference period
- Registered office address
- Legal form
The second section is about the branch details of the relevant activity to which the Licensee is reporting. If the licensee is reporting the relevant activity of the branch then it is required to provide the branch details i.e. Commercial License, Trade License or Permit Number and licensing Authority.
Then comes the Reportable Period under Economic Substance Regulations is the financial period to which the notification relates commenced on or after 1 January 2019. The end of the Reportable Period must correspond to financial year end of the business, and the period that financial statement are prepared for. The applicants are required to include the “start” as well as the “end” date of the relevant financial period. It must be kept under consideration that the Reportable Period is always the financial period that precedes the financial period in which the notification is required to be submitted.
You should know : Economic Substance Reporting in UAE
In the next section of ESR Notification Form, the details about the Relevant Activity should be given in which it is to be reported by the Licensee or Exempted Licensee that whether they carry on a Relevant Activity during the Reportable Period. If Yes, then;
- What Relevant Activity was carried on?
- What income was earned during the reportable period?
- Was the income earned subjected to tax outside the UAE?
- Regulatory Authority
If the Licensee has opted for “Intellectual property business” from the Relevant Activities then they should confirm that whether they are a High Risk IP Licensees or not. If the Licensees are High Risk IP Licensee, then following details must be provided:
- Direct parent company
- Ultimate parent company
- Ultimate beneficial owner
Then the Licensee is required under ESR in UAE to confirm that if he meets the definition of an “Exempted Licensee” and if so then:
- Exempted Licensees must confirm that the Licensee is an investment fund.
- Exempted Licensees must confirm that it is an organization that is a tax tenant in a state other than the United Arab Emirates.
- Moreover, it must also confirm that the Exempted Licensee is an organization entirely retained by the citizens of the United Arab Emirates keeping under consideration that the Exempted Licensee is not part of any Multinational Corporation and has organization only in the UAE.
- Exempted Licensees must confirm that it is a branch of a foreign organization whose income is to subject tax outside the United Arab Emirates.
ESR Notification Form then consists of Ownership Information, in which the Licensee will provide details about:
The parent company is that directly:
- Holds a majority of voting rights
- Has the authority to appoint or remove board of directors majority
- Rules alone, pursuant to a common arrangement with other shareholders or members, has most of the voting rights in the Licensee
- Has the power and authority to have dominance over the Licensee
Ultimate Parent Company
The Ultimate Parent Company is that:
- Holds a sufficient interest directly or indirectly in the Licensee or Exempted Licensee
- There is no other organization in the group that holds directly or indirectly a sufficient interest in such entity
Ultimate Beneficial Owner
The Ultimate Beneficial Owner is the one who possesses directly or indirectly Twenty Five percent or more of the shares of a Licensee. Ultimate Beneficial Owners can be more than one entity.
The last section of ESR Notification Form is Declaration which includes:
- The Designated Contact Person is the one who has the power to respond to queries and provide supporting documents to the respective Regulatory Authority.
- ESR penalties ranges from AED Ten thousand to Fifty thousand, if inaccurate information is provided by the Licensee knowingly does not correct the information.
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