The Economic Substance Regulation was introduced in 2019 by the UAE government to encourage economic activity and combat harmful tax practices. For ESR purposes, licensees must conduct relevant activities in the UAE to validate “substantial economic presence” in the country. Thus, it is advisable for licensees to seek the services of top ESR consultants in UAE to meet the notification and reporting requirements for ESR purposes.
Who is required to notify and report for ESR purposes?
ESR applies to UAE companies that conduct “relevant activities” that include and are not limited to banking, insurance, investment fund management, and shipping, among others. For companies to meet ESR requirements, they must meet the following two standards;
- They must conduct one or more relevant activities in the UAE.
- They must not be tax residents in another jurisdiction.
Exemptions from ESR
Distinct licensees are exempted from ESR report filing; however, all licensees are required to notify for ESR purposes. Such exempted licensees include:
- Companies that are tax residents outside the UAE.
- Companies in the UAE that conduct a relevant activity to which the income will be accrued outside the UAE.
Therefore, it is imperative for companies to establish whether they qualify for ESR exemption and to ensure compliance with the Economic Substance Regulation to which noncompliance accrues hefty fines.
ESR Reporting Requirements
Licensees in UAE are required to report for ESR purposes, the Economic Substance Regulation ensures companies with relevant activities have a substantial economic presence.
What Needs to be Reported?
Companies must report on their relevant activities, including the generated income and expenses from these activities. Licensees must also demonstrate that they have adequate resources to conduct these activities in the UAE such as;
- Premises
- Staff
- Equipment
Essentially, businesses must confirm that they have an open economic presence within the jurisdiction.
ESR Notification
ESR notification is a high-level report that delivers essential information about the company and its relevant activities. It should be submitted within 6 months of the end of the company’s financial year.
Read more: How to File ESR Notification in the UAE
ESR Report
ESR report is a more thorough report that delivers information on the company’s relevant activities, income, expenses, and the competence of its resources in the UAE. It should also be submitted within 12 months of the end of the company’s financial year.
Deadlines for ESR Notification and Reporting
It is important to note that ESR notification and ESR have distinct deadlines.
- The ESR notification must be submitted within 6 months of the end of the business’s financial year
- The ESR report must be submitted within 12 months of the end of the business’s financial year.
ESR Filling Requirements
Timely and effective filing of ESR reports is essential in ensuring compliance with the Economic Substance Regulation, UAE. Below are the forms that need to be filed for ESR purposes;
What Forms Need to be Filed?
Businesses that are subject to ESR requirements need to file 2 forms
- The ESR notification form
- The ESR reporting form
Both forms are submitted online (electronically) to the Ministry of Finance.
Electronic filing
The ESR forms (the ESR notification and the ESR report) can be submitted through the Ministry of Finance’s online portal. Companies should have the following to access the portal and submit their reports;
- An active Tax Registration Number (TRN)
- Economic Substance Notification (ESN)
Read more: Understanding the ESR reporting requirements in the UAE
Penalties for Non-Compliance
Non-compliance with the Economic Substance Regulation in the UAE accrues penalties upon licensees:
- Failure to comply with ESR regulations can result in financial penalties ranging between 10000 to 50000 AED.
- Businesses that do not comply with ESR requirements may face interruption, revocation, or non-renewal of their business license.
Therefore, the UAE government has established penalties for non-compliance with ESR regulations to ensure that companies maintain transparency and sufficient substance.
Seek the expert services of ESR Consultants in UAE
The UAE Economic Substance Regulation intends to ensure that companies engage in extensive economic activities and have a tangible presence within the jurisdiction. Licensees are required to comply with ESR notification and reporting requirements to avert penalties for noncompliance. To add on, licensees ought to submit their notifications and reports correctly within the prescribed deadlines for ESR purposes and to ensure compliance. We are a trusted and reputable ESR Consultant in the UAE, we assist companies to navigate and combat ESR complexities upon notification and report filing, in compliance with the Economic Substance Regulation.
Therefore, contact us today and we shall be glad to assist you!
