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.
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 non-compliance.
Several companies before the implementation of ESR in the UAE took advantage of the tax-free status. They moved their profit centers to UAE to avoid paying high taxes to the parent country’s government. This was a disregard for the economic benefits provided by the UAE and a form of tax evasion method used by some companies. ESR in UAE 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.
By the Economic Substance Regulations, ESR filing UAE requires the Licensees and Exempted Licensees to file a Notification to their respective Regulatory Authorities for the relevant Financial Year in which the business carries the relevant Core Income Generating Activity. For ESR Notification Filing they are required to submit:
Exempted Licensees are also compelled to file the ESR Notification and along with that, submit supporting documents in order to qualify their exemption.
Read also : Economic Substance Reporting & Guidance in UAE
Exempted Licensees who are tax residents in a jurisdiction outside the United Arab Emirates should submit the following documents:
However, when a business is unable to provide adequate evidence in order to verify its exemption position, the Regulatory Authorities change the status of the business and repute them as a Licensee.
The time period for the submission of notification is different from that of an Economic Substance Report. The Ministry of Finance Portal is used for ESR Notification Filing which is done within the period of six months from the end of the relevant Financial Year. Also, the Licensees who have submitted an ESR Notification directly to their respective Regulatory Authorities should re-submit a Notification electronically on the Ministry of Finance Portal once available.
Read also : Economic Substance Regulations Notification Form
Businesses are required to meet the requirements of the Economic Substance Test and file the ESR Report which entails the submission of information and documentation mentioned in the Economic Substance Regulations within the period of the relevant Financial Year. In accordance with the Ministerial Decision 57 of the year 2020, ESR Reporting should be done within twelve months from the end of the respective Financial Year.
After ESR Reporting, the National Assessing Authority issues its decision showing whether the Licensee has met the Economic Substance Test requirements within six years of the end of the relevant Financial Year.
For ESR Reporting UAE, companies that undertake the Relevant Activities are required to report;
ESR Reporting UAE is to be submitted by the companies to the respective Regulatory Authority each respective financial year to show that they are carrying out the Relevant Activity. Under Economic Substance Regulations, it is compulsory to submit the details of the Relevant Activity, revenue, expenditures, and resources that show whether the Economic Substance Test of UAE is met.
If the company undertakes any one or more of the activities mentioned above during the financial year, it is crucial for the company to be ESR Compliant by:
| FINANCIAL YEAR ENDING ON | DUE DATE FOR NOTIFICATION | RETURN DUE DATE |
| 31st Dec 2024 | 30th Jun 2025 | 31st Dec 2022 |
| 30th Jun 2024 | 31st Dec 2024 | 30th Jun 2022 |
If the licensee or exempted licensee provides the regulatory authority or National assessing authority inaccurate data and is aware at the time of the inaccuracy but fails to communicate this with the regulatory authority or National Assessing authority at the time when such inaccuracy was discovered, then a penalty of AED 50,000 shall be charged.
Businesses must ensure that the ESR notification and reporting are 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.
Our expert ESR consultants provide end-to-end services for ESR Reporting. Also, they will give remedial measures and guidance for the economic substance regulation assessment, so the relevant activity is categorized as per your license. They also hold relevant experience and expertise in helping your business identify the relevant ESR activities and file for notification without an error in submission deadlines and reporting.
Bola Olaoye is a Legal Senior Associate and holds an LLB from Adekunle Ajasin University as well as a Bar Certificate from the Council of Legal Education. With experience spanning 14 years, she knows the ins and outs of UAE’s laws and practices and has helped provide clear and concise guidance to clients on the appropriate law-abiding measures to be taken concerning Economic Substance Regulations (ESR).