Understanding the types of ESR penalties and How to appeal against an ESR penalty

Since its inception in 2019, Economic Substance Regulation has formed an integral part of reporting to the Federal Tax Authority. The National Assessment Authority ensures that all the information provided by the licensee for notification or reporting complies with the required standards. If not, then there is a penalty levied on the licensee. There is, however, a window of days where the licensee can appeal to the FTA regarding the administrative penalties.

What are the types of penalties under ESR?

Penalty under Article 13

The failure of the licensee or the exempted licensee to submit a notification within six months from the end of the financial period. The period for submitting the notification can be extended only with the authority’s approval for exceptional cases. The penalty amount is AED 20,000. The penalty could be levied until six years from the violation date if the penalty was not imposed earlier by the National Assessment Authority.

Penalty under Article 14

The two violations under article 14 are

  1. The penalty is levied if the ESR report is not submitted within 12 months from the end of the financial year
  2. Submitting an incomplete report that doesn’t meet the ESR reporting standards.

If the license or the exempted license company repeats one of the two mentioned violations in the following year, there is a penalty.

Read also: How to file ESR in UAE

Penalty under Article 15

Article 15 is divided into two parts. One is the submission of incorrect reporting, and the second is the person aware of the inaccurate and erroneous data at the time of report submission. Therefore the responsible person submitting the report must be aware of all the details mentioned in the report and also be able to support its accuracy.

The second part of the article states that the responsible person for the ESR reporting must notify the National Assessing Authority about any discrepancies and or special notes or any possibility that data can be inaccurate due to some reasons. The article states as below.

Providing inaccurate information about Economic Substance Regulation when he was aware of its inaccuracy when submitted or did not notify the regulatory authority or the National Assessing Authority when he discovered its inaccuracy after its submission.

What is the objective of an appeal under ESR?

Under the Cabinet of Ministers Resolution number 57 of the year 2020, under article 17, there is a provision for “appeal” as a service concerning the Economic Substance Regulation. Therefore, if a licensee is specific, they

1) Did not commit the violation,

2) The penalty imposed is not in proportion to the violation and

3) The administrative penalty imposed is greater than the limited prescribed penalty.

Hence if any of the three conditions are met by the licensee, they can appeal to the Ministry of Finance Portal.

Read more: Economic Substance Regulations penalty email from FTA in UAE

Steps to appeal for an ESR Penalty in UAE

  1. An Appeal can be registered by going to the Ministry of Finance Portal and logging in with the registered login details.
  2. The entire process of ESR submission is mentioned on the dashboard in a vertical format with a deadline mentioned adjacent to it. You need to click on the “Appeal Option”. Since there is a window for the appeal against the penalty, the deadline is mentioned next to the appeal option. There is a 40 working days window to apply for an appeal. In case the deadline has passed, there is no other way that an appeal can be requested. Hence it is essential to take action when a penalty is levied for ESR report filing.

The provision for the number of days to pay the penalty is put on hold if you successfully submit an appeal. The deadline days for paying the penalty are readjusted if the request gets rejected or withdrawn by the licensee or exempt licensee.

  1. Up to 10 documents supporting the appeal claim can be uploaded, but the file size cannot exceed more than 40 MB. The short explanation provided on the portal must be accurate and to the point. Qualified consultants from Economic Substance Regulations offer remedial measures to penalties and ensure that your documentation and explanation are accurate to avoid rejection.
  2. Once the “send” option is clicked, you will receive an email prompt “appeal submitted” or “No appeal submitted”. In case of no appeal submission, you need to apply. It takes approximately 40 working days for the National Assessment Authority from the submission date to make a decision. The decision is shared with the applicant within five working days.
  3. You can also follow up by sending an email to ftaesr@tax.gov.ae  with the required documents like the licensee name, the license number, & the Regulatory Authority you report under. The case ID is provided to every appeal, and the attachments should include it in the email. It is best if it is mentioned in the subject of the email.

ESR consultants from Economic Substance Regulations

The process of appeal is a straightforward one. But when ladened with requests for information and additional documents, the applicant may make a mistake again. Since these are government-related procedures, the applicant must be accurate with all the information the National Assessment Authority requests for an appeal. ESR consultants from Economic Substance Regulations are well versed with the procedures and have a wealth of experience in dealing with organizations that seek appeal requests for ESR penalties. There are various reasons such as

  1. Technical issues
  2. Duplicate submissions
  3. Amendments in ESR Notifications and Reporting

There is no reason to panic as Economic Substance Regulations provide consultation and ESR filing and reporting services.