ESR Notification Deadline on June 30th, 2024 in UAE

The UAE has introduced Economic Substance Regulations (ESR) as part of measures to avoid harmful tax practices and to empower tax transparency further. With this commitment, as a member of the OECD Inclusive Framework on BEPS, the UAE seeks to ensure that an entity carrying on business in its jurisdiction has an actual economic presence in UAE.

Know the UAE ESR Compliance Requirements

Before going into the ESR notification deadline, it is important to understand the mandatory requirements in the UAE under the ESR Law. Businesses are advised to seek help from experienced ESR consultants to ensure compliance and avoid penalties arising due to non-compliance with the law.

The UAE’s vital ESR obligations are mentioned below:

1. ESR Notification

UAE entities that carry out any one or more of the Relevant Activities are required to file the notification within six months from the end of the financial year (FY) through the online ESR portal of the Ministry of Finance. However, multiple UAE branches of any UAE entity shall submit only a single consolidated notification. For this submission, it is required for entities to detail which relevant activities were conducted, whether any income was earned therefrom, and if such income was subjected to tax outside the UAE.

The nine relevant activities include:

• Banking Business,
• Insurance Business,
• Investment Fund Management Business,
• Lease-Finance Business,
• Headquarters Business,
• Shipping Business,
• Holding Company Business,
• Intellectual Property Business, and
• Distribution and Service Centre Business.

2. Economic Substance Test

Companies must prove that they have adequate economic substance in the UAE, which is satisfied by meeting a set of criteria attached to the Relevant Activity.

3. Reporting

ESR Reporting means the annual submission of financial data along with other relevant information. It must be submitted within 12 months from the end of the financial year, but only if income has been earned during the period from the Relevant Activity and the licensee was not exempt from the ESR. UAE ESR consultants can assist in filing the report.

Who is required to file an ESR Notification?

Any legal person incorporated within the UAE, whether onshore, in a free zone, or offshore, is obligated to submit an ESR Notification if they conduct one or more of the relevant activities in a financial year. This holds even if the company has not made any income from the relevant activity.

Breaking this down into who should file:

• Businesses conducting relevant activities: Each of the companies that perform one or more of the relevant activities will be required to file the notification.
• Businesses Exempt from Report: Not all businesses carrying on Relevant Activities may require the Report. An exempt business shall be a business with a low value of relevant activity income or one that is granted a specific license by a relevant authority, on the grounds that the business meets the economic substance requirements. However, the exempt business still has to file a notification to claim the exemption.

It is to be noted that the burden of proof of exemption will lie on the business. If you are in doubt about your ESR obligations, the best approach is to seek advice from a tax advisor specialized in ESR regulations.

What is Included in the ESR Notification?

The ESR Notification process is quite simple. The process includes the submission of a form electronically via the Ministry of Finance portal. Normally, the details needed for a notification include:

• The details of the name and registration of the company
• The contact information
• The details of the relevant activity or activities carried on by the business
• Whether the business is claiming an exemption

Ensure the information provided in the notification is both accurate and complete. The FTA, in many cases, might require some documentation to further assist your notification, especially if one is claiming an exemption.

ESR Notification Deadline for the Year of Assessment 2023

The table below sets out the ESR notification and reporting due dates for taxpayers with a financial year ending on 31 December 2023.

The deadline for filing the ESR notification is 30 June 2024 for the financial year ending 31 December 2023.

Penalties for Non-Compliance

Failure to comply with the ESR standards in the UAE attracts significant administrative penalties. Failure to report the ESR notification by an entity attracts AED 20,000, and failure to report the ESR report attracts a penalty of AED 50,000.

Compliance with ESR Deadlines

In light of the above, business owners should consider the following steps to ensure they are in compliance with the ESR notification and reporting timelines:

• Self-evaluation: identify if your business falls under the ESR criteria and to what extent it falls.
• Change assessment: look at changes made in your business since the close of the last financial year that may lead to a change in ESR qualifying.
• Get the right professional help: hire qualified ESR consultants in the UAE who will help you in the compliance process and ensure that the necessary documentation is submitted on time.

How Farahat & Co. can assist in ESR Filing in UAE

Farahat & Co. is one of the leading providers of ESR advisory services in the UAE. We can assist you in the following ways:

• Understanding the ESR requirements and identifying your obligations
• Carrying out an extensive review of your business activities
• Preparation and submission of ESR notification and report
• Support and advice for ongoing compliance
• Negotiation with the relevant authorities, if required.

Working with Farahat & Co. can help you ensure that your business is, in fact, ESR-compliant and can thereby save your business from getting penalized due to non-compliance.

Get in touch with us now to find out more about our ESR consulting services and enjoy hassle-free compliance.

Read More: Things to be notified in Economic Substance Notification Form