The Economic Substance Regulation was implemented on 1st January 2019. Under the new law, companies must follow essential steps in compliance with the ESR standards.
- The compliance of notification
- Filing annual substance return
ESR is supervised by relevant Regulatory Authorities, and hence there are slight differences when it comes to filing the ESR returns. This includes different deadlines, documentation requirements and the related penalties for noncompliance. A penalty for AED 10,000 to AED 50,000 is levied if the company missed the deadline of filing the ESR returns. Upon multiple noncompliance status from a licensee, the Regulatory Authority has the power to revoke the license, thus suspending all activity of the company.
How can you file an Economic Substance Regulation notification?
Several companies before the implementation of ESR in the UAE took advantage of the tax-free status. They moved their profit centres to UAE to avoid paying high taxes to the parent country government. This was a disregard to the economic benefits provided by the UAE and a form of tax evasion method used by some companies. ESR regulation ensures that such activity doesn’t occur by allowing companies to notify them through their relevant activity. A relevant activity is where companies perform the activities mentioned in their trade license and have a standard business setup in the UAE.
The Regulatory Authority must receive an ESR notification every year, and the date of financial reporting must be considered appropriately. Irrespective of the company’s Regulatory authority, such as mainland business, free zone, offshore business, the following companies are to comply with the ESR in the UAE if they conduct the following.
- Banking Business
- Lease finance Business
- Holding companies
- Intellectual properties
- Insurance Business
- Headquarter business
- Shipping Business
- Investment Fund management Business
- Distribution and Service Centre Business
Hence any income is generated from the above activities, and the licensee falls under the scope of ESR filing.
Shared Services and group auditing is a common practice in the UAE. Several companies filing VAT audit returns on a group level is easier for companies. However, when it comes to ESR return filing, companies must file the notification individually, eradicating the consolidated return filing. A company incorporated on 1st July 2019 follows the financial year 2019-2020 and hence must provide the ESR notification on year-end March 2020. All changes in the relevant activity during this period are to be disclosed in the ESR filing. Audit companies in Dubai and across UAE hold relevant experience and expertise in helping the firm identify their relevant activities and file for notification without an error in submission deadlines and reporting.
Below are the deadline dates for Economic substance Notification across various Regulatory authorities in UAE
|Year End for the Company||ESR Notification Deadline||ESR Report Filing Deadline|
|31st Oct 2020||30th April 2021||31st Oct 2021|
|30th November 2020||31st May 2021||30th November 2021|
|31st December 2020||30th June 2021||31st December 2021|
|31st January 2021||31st July 2021||31st January 2022|
|28th February 2021||31st August 2021||28th February 2022|
|31st March 2021||30th September 2021||31st March 2022|
|30th April 2021||31ST October 2021||30th April 2022|
|31st May 2021||20th November 2021||31st May 2022|
|30th June 2021||31st December 2021||31st July 2022|
Why select a professional Accounting Services company to conduct your ESR Reporting?
Business must ensure that the ESR notification and Reporting is done before the deadline. Since ESR is a relatively new concept in the UAE, many companies still find it challenging to identify their core income-generating activities. Additionally, being unaware of penalties on various levels is an extra cost that can be avoided. Using an experienced accounting service from qualified Chartered accountants in the UAE gives you an extra edge in financial reporting. Economic Substance Regulations have expert ESR consultants who provide end to end services for ESR Reporting. Also, they will give remedial measures and guidance for the ESR assessment, so the relevant activity is categorised as per your license.