Non-compliance with the ESR regulations can lead a licensee to receive an Economic Substance Regulation penalty email from FTA. Economic Substance Regulations in the UAE suppose all the businesses that fall under its scope of relevant activities to comply with the rules and regulations. If any act of offense or non-compliance is made by a licensee, the National Assessing Authority will determine it and impose penalties accordingly. A licensee can attract penalties intentionally or unintentionally e.g., sometimes licensees forget to submit the ESR notification or report within the due date or sometimes licensees try to provide false information. Cases like these lead to fines and penalties in the UAE. The Ministerial Decision no. 57 has clearly explained the following instances when the licensee can receive penalties;
Failing to File a Notification
The most common reason why licensees face penalties is failing to submit the notification on time. According to Decision no. 57, a penalty of 20,000 AED is imposed on a licensee that fails to submit a notification on time. In the first place, remember that the notification needs to be submitted through the online ESR portal launched by the Ministry of Finance. If someone submits the notification through any other means, it will never be considered by the Ministry and the status will not change to submitted. This will lead the licensee to face an ESR penalty. Also, the licensees need to remember that the notification needs to be submitted six months before the year-end date of the financial year. Both the licensees and exempted licensees need to keep this due date in mind and submit the notification. Exempted licensees sometimes assume that they don’t need to submit a notification which is a false assumption. Economic substance law in UAE requires the exempted licensees to submit the notification with evidence of their exemption status and it is the report which is not required from the exempted licensees.
As far as non-compliance with notification submission is concerned, the following is what the National Assessing Authority will do;
- The authority will first determine that a particular licensee or exempted licensee has failed to submit a notification and will notify the licensee or exempted licensee that they have committed this offense.
- The authority will provide the licensee or exempted licensee the reasons why they believe that this offense has been committed.
- The authority will let the licensee or exempted licensee know the amount of the penalty.
- The authority will also give a due date of penalty submission which will be a minimum of thirty days from the notification of penalty.
Failing to Submit a Report
Just like how licensees fail to submit a notification on time, it is possible that they might also fail to submit an ESR report within the due date. A penalty of 50,000 AED is imposed on the licensee in case of non-compliance with ESR reporting UAE. In the first place, licensees misunderstand the due dates of notification submission and report submission. Unlike the deadline of notification which is just six months before the year-end date, the report needs to be submitted 12 months before the year-end date. The licensees might assume that the due date of report submission is also six months before the year-end date which leads them to penalty. It is not only the submission of a report that is mandatory but failing to provide the mandatory documents or information with the report will lead to the same penalty in the light of the Resolution. Even more important is that the licensee can fail to meet the ESR test by not submitting the report or not providing the mandatory information or documents.
Read also : Ways of filing ESR Notifications and Report
Failing to Meet the ESR Test
After a licensee submits the ESR report, the authority determines and declares its decision whether or not the licensee has met the economic substance test. Economic substance regulations penalty email in the UAE can also be received by a licensee who fails to meet the ESR test according to the decision of the authority. The following is what the authority will do in this case;
- The authority will notify the licensee that it has made an offense of not meeting the ESR test of the relevant financial year.
- The authority will provide the reasons why they believe this offense has been committed.
- The authority will let the licensee know the amount of the penalty that is due.
- The authority will also provide the due date of submission of the penalty which will be a minimum of 30 days from the notification of penalty.
If a licensee fails to meet the ESR test again in the consequent financial year, a penalty of 400,000 AED will be imposed on it.
Providing Incorrect Information
If the licensee or exempted licensee provides the authority with incorrect information and fails to do the correction before the authority notices it, a penalty of 50,000 AED will be imposed on it. The licensee will be considered failed for the ESR test of the relevant financial year. It is always encouraged to check the information that you provide in the notification or report because the licensee has a chance to do the correction by reaching out to the authority before the authority notices it. The authority will do the following if a licensee provides incorrect or false information;
- The authority will notify the licensee of failing to meet the ESR test.
- The authority will provide all the reasons why the licensee failed to meet the test.
- The authority will mention the amount of the penalty.
- The authority will mention the due date of the penalty submission which will be a minimum of 30 days from the penalty notification.
Is there any period in which penalty email can be received?
Yes, there are the following proper criteria;
- In the case of non-submission of notification or report, the authority has the time of six years from the date of offense to determine the case and impose a penalty on the licensee.
- In the case of providing inaccurate information, the authority has a time period of 12 months to determine the case and impose a penalty.
- These deadlines do not apply if the case falls within the definition of fraud and now the case will be handled in a different way according to UAE law.
Is there any due date for penalty submission?
Whenever a licensee commits an offense and the authority notices it, it will receive an economic substance regulations penalty email which will include the date of submission of the penalty along with the amount of penalty. There is no definite date provided by the economic substance regulations guidance and it depends on the authority which due date they set. However, the due date will not be less than 30 days from the notification of penalty.
You should know : ESR Notification Post Submission Problems & Solutions
Can someone appeal against the penalty?
Yes, it is possible to appeal against the imposed penalty. The authority will provide the licensee with a resolution containing the criteria for appealing against the penalty only under the following conditions;
- If a licensee has not committed the violence for which a penalty has been imposed, it can appeal the authority to verify its decision again.
- If the amount of penalty is not in accordance with the type of violation, the licensee can appeal against it.
- If the penalty exceeds the limitations provided by Ministerial Decision no. 57, the licensee can appeal against it.
Choose the Best Services
Above mentioned cases are the most common cases in which licensees face penalties in the UAE. If you have received a penalty email any different from the above cases, ask Economic Substance Regulations experts for complete guidance about your case. If you don’t want to attract such penalty emails from FTA and want to run your business smoothly in compliance with the ESR regulations UAE, choose our qualified service providers.
Syed Hassan Ali carries with him an experience of 13 years in providing legal guidance and consultancy. He is a holder of two degrees, one in Business Management and the other in Economics for Engineers and Scientists. He carries an in-depth knowledge of the UAE market and continues to be an asset to businesses, providing clarity regarding applicability of the ESR regulations as well as guide them in making informed decisions.