UAE Economic Substance Guidance

Economic substance reporting is a requirement of Economic Substance Regulations and provides information about the licensee, assets, expenditure, income, employees, and management to the National Assessing Authority. Any corporate organization or partnership (e.g, private or public joint stocks, general partnership, limited liability company or partnership, etc) that generate relevant income from relevant activities described by ESR in UAE and does not fall under the scope of exemption reports to the relevant authority during every reportable period.

Economic Substance Reporting & Guidance

To understand the criteria of ESR reporting more clearly, the following key points must be considered;

  • The purpose of requiring this report by the regulatory authorities is that they want to check whether the business is performing a relevant activity in the country or not.
  • The authorities determine the information about the taxes whether the business is paying taxes inside or outside the UAE.
  • The authorities would determine the financial year-end date for the business that is reporting.
  • Both the existing businesses and new businesses formed before or after 30 April 2019 are supposed to comply with the ESR reporting requirements only if they execute one or more relevant activities in the UAE.
  • A business that operates in the UAE through branches and the head office pays taxes on incomes in a jurisdiction outside UAE is not required to report in the UAE.
  • A UAE-based business that operates a branch in a foreign country and pays taxes on income in that country’s jurisdiction is not required to report for that branch in the UAE.
  • After evaluating the report submitted by a business, the National Assessing Authority needs to decide whether the business has met the ESR test or not. The authority needs to provide its decision to the business within six years from the financial year-end date of the business.
  • In case of fraud, negligence, or providing wrong information to the authority, the six-year period will not apply.

Is it possible to submit a single report for multiple businesses?

Sometimes more than one business is owned by a single owner but it is not possible that the owner submits a single report. He/She has to report to every business that performs relevant activities in the UAE.

Can multiple licensees submit a single report?

Sometimes licensees work in consolidated groups performing the same relevant activity for the purpose of making accounting procedures easy. However, every licensee needs to submit a different report. It does not matter if the licensees work in a consolidated group or not because every licensee is registered independently for the business in the UAE.

Read also : Economic Substance Regulations Filing in UAE

Do branches need to report?

No, the branches are not required to submit the report independently. The parent or head organization is supposed to report for the entire business including all of its branches inside or outside the UAE. The foreign branches of a business that pay taxes in a foreign jurisdiction shall be excluded from the report.

What is the due date of economic substance reporting?

A licensee needs to submit the ESR report within 12 months from the year-end date, unlike the ESR file which needs to be submitted within 6 months. This difference in due dates for files and reports must be kept in mind.

Where to submit the report?

The report shall be submitted by all the licensees on the electronic economic substance regulations portal introduced by the Ministry of Finance. The ministry always launches the system on time.

What if the business will liquidate during the year?

No matter whether the business will be liquidated before the year-end date of the business, it still needs to fulfill the economic substance filing and reporting requirements. It needs to present the ministry with information on relevant income generated before the liquidation.

You should know : Economic Substance Reporting in UAE

What happens when a licensee fails to submit the report?

If a licensee is required to submit the ESR report but fails to do so within the deadline either intentionally or unintentionally, will be subjected to a 50,000 AED penalty. It also increases the chances of the business having failed the ESR test.

What if a licensee provides incorrect information?

If a licensee adds false and incorrect information in the report, it will be subjected to a 50,000 AED penalty. It will also increase the chances of the business to have failed the ESR test.

Do exempted licensees submit the report?

According to ESR regulations, the licensees that fall under the scope of being exempt do not need to submit the ESR report. However, the exempted licensees do need to file the notification in which they claim to be exempted with enough evidence. If a licensee calls itself exempted and fails to prove the exemption status, it will result in failing the ESR test.

Choose the best services

To learn more about economic substance reporting, consult Economic Substance Regulations. Submitting an ESR report can be a challenging task and even a minor mistake can attract penalties, therefore you need to choose the best service providers who will help you throughout the process of submitting the report. Let our experts do it for you.