The Economic Substance Regulation (ESR) Regulatory Authorities evaluate and determine whether a Licensee satisfies the ESR Test. Essentially, the ESR Test checks if the business has conducted an Income Generating Activity and if the company has generated a Relevant Income within a reportable period, as specified in the Economic Substance Regulation. It is imperative to note that the ESR Regulatory Authorities imposes a fine upon companies for failure to submit the ESR Notification and Report timely before the set deadlines, (ESR Notification Filing Deadline: June 31st) and (ESR Report / Return Filing Deadline: December 31st).
Functions of the ESR Regulatory Authorities include and are not limited to the below:
Procure Licensee’s Documents & Requisite Records
The Regulatory Authorities receive and verify the Licensee’s documentation and data, prior to issuance of ESR Notification and Report filing, respectively. The ESR Regulatory body affirms the authenticity of the requisite documents and records, if any documents are missing and required, the ESR Regulatory Authorities requests the licensee to issue the same.
The Authorities execute the following:
- Notify the Licensee by sending a notice asking for more details or records.
- Enter a Licensee’s property within its jurisdiction to attain the documents.
- Imposes a fine upon licensees for failure to meet the test and failure to meet submission deadlines.
Rules Whether the Licensee Passes the Economic Substance Test
The Licensee’s documentation and records are used by the Authorities to evaluate whether the entity passed the assessment for the relevant Fiscal Year. When determining if the Licensee has a suitable number of qualified personnel in the UAE, the Authority considers timecards or any other relevant data. It also takes into account how much time different employees spend conducting CIGAs. This is required because a given Licensee’s CIGA may change over a fiscal year, which may affect how many staff and other assets are available. In parallel to their primary duties, the corporation’s executives may also carry out CIGAs, which could lessen or do away with the need for full-time workers. In such circumstances, the Regulatory Authority may request that the Licensee provide documentation of the directors’ performance of CIGAs.
Action charge if the licensee doesn’t pass the economic substance test
A notification from the Regulatory Authority informing a Licensee of the reasons for the rejection and a fine sum will be issued if the Licensee does not pass the Economic Substance Test. However, entities have the option to appeal, and the Licensee would be instructed to conduct the required steps to pass the test. If the applicant doesn’t pass the test, an operational fine between 50,000 and 300,000 AED will be applied.
Convey Data to a Competent Foreign Authority
The Regulatory Agency provides the Competent Authority with all pertinent details on the Licensee, whether or not it passed the test, and if it is a High-Risk IP Organization. If the firm doesn’t pass the test or is a High-Risk IP Entity, the Competent Body, in turn, gives the Foreign Relevant Authority the data regarding the Licensee.
Information Exchange and Reporting Criteria
The Regulatory Authority gathers pertinent data, businesses would be requested to submit particular information handy and through the ESR notification that the Licensee submits. The ESR Regulatory Authorities receives all findings, documents, and data.
Avail Top-Notch ESR Consultation in the UAE
Failure to comply with ESR regulations and standards accrues hefty fines and penalties upon licensees, thus corporations are highly advised to seek expert ESR consultation from reputable tax agents in the UAE to effectively enforce compliance with ESR regulations and standards and to avert fines for noncompliance. Economic Substance Regulations is a trusted point of conduct in the UAE, we provide cost-efficient services that are streamlined to meet the client’s specific needs. So, contact us today and we shall be happy to assist you!
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.