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;
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;
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
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;
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.
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;
Yes, there are the following proper criteria;
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
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;
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.