The Economic Substance Regulation compels businesses that conduct relevant activities to meet the Economic Substance Test to which certain prerequisites have to be fulfilled. Primarily, corporations ought to submit the Economic Substance Report to the relevant regulatory authority and subsequently file returns. To have an in-depth understanding of the Economic Substance Regulation and to stay compliant with the Federal Tax Authority’s regulations and standards, it is advisable to seek the services of accredited tax consultants in the UAE.
When are businesses required to submit an ESR report?
Businesses are required to submit an ESR report for every single financial year in which it executes a relevant activity. When a financial year completes, a business has 12 months from the end of the relevant financial year to prepare and submit the financial ESR report. This is the prescribed deadline as per the law that governs economic substance regulation in the UAE. Within the 12 months period, businesses have to submit the report through the FTA online portal designed for the submission of reports and ESR notifications.
What information needs to be reported in the ESR report?
Following are the contents of the economic substance report template;
1. Fill in some general information
In this section, you will need to provide the licensee name, license number, name of the licensing authority, name of regulatory authority, permanent place of establishment, name of city and country of the office, complete address of the office, legal forms, and premises. In addition to this, you will need to answer the following three questions;
- Whether or not the business is registered for Value Added Tax in the UAE.
- Whether or not the entity is part of any multinational group.
- Whether or not the entity is completely owned by the government of UAE.
2. Fill in the detail of your branch or branches (if any)
If you have branches other than the main office of your company, then you need to fill this section. If you are reporting for any of your branches, then fill in this section with the license number and name of the licensing authority. You can add branch details of one to many branches individually.
3. Choose your Reportable/Financial Period
In this section, you will need to mention the start and end date of the financial year for which you are reporting. Note that you cannot mention the start and end date of the current financial year but the one that has been completed.
4. Answer a question about updated information
In this section, you will need to mention whether or not the various above questions are different from the notification form that you have already submitted. You will need to provide a reason if you say “yes” to this.
5. Fill in your financial information
In this section, you will need to mention the total revenue of the financial year, accounting profits or losses, and the net value of your UAE assets. Furthermore, you will need to answer the following questions;
- Whether or not you have audited financial statements of the reportable financial year.
- Whether you are using AED or USD as your currency in your financial statements.
Read more: Ways of Filing ESR Notifications and Report
6. Fill in information about the relevant activity that your business executes
In this section, you will see a list of relevant activities from which you will need to select one or more relevant activities that your business executed in the reportable financial year. You will need to mention the relevant authorities along with the relevant activities. Furthermore, you will need to answer the following questions;
- Whether or not you are a high-risk intellectual property business.
- Whether or not the business has hired any outsourced service provider for any of the relevant activities.
Next, you will need to fill in detailed information about the relevant activities you selected.
7. Fill in information about the ownership of the business
In this section, you will need to mention the name of the parent company, its tax identification number, its complete address, and its tax residence country. The same information will be needed to mention the ultimate parent company and ultimate beneficial owner. You will also need to fill in similar information about the outsourcing providers if you worked with any.
8. Fill in the information on how your business is managed in the UAE
You will need to justify in this section about how your business was managed in the UAE in the reportable financial year by providing details about board meetings held inside or outside the UAE, decisions of the meetings and minutes of the meeting.
9. Fill in declarations
In declarations, you will need to confirm that you have adequate physical assets, adequate expenditure, and an adequate number of qualified employees. You can also add additional documents along with the mandatory financial statements.
10. Preview your form
Once you are done with accuracy and carefully completing your form, you can click on the preview for a final review of your form before submitting it.
Consult a UAE ESR consultant today
To have an in-depth understanding of the Economic Substance Regulation and to stay compliant with the Federal Tax Authority’s regulations and standards, it is advisable for companies to seek the services of accredited ESR consultants in the UAE. Thus, contact us today and we shall be happy to assist you!
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).