According to the standards set by OECD and EU COCG the Economic Substance Regulations were issued by United Arab Emirates on 30 April 2019. Moreover, the assistance for these regulations were issued on 11 September 2019. The Economic Substance Regulations underwent certain changes and the new Regulations were proposed on 10 August 2020 in accordance with Cabinet of Ministers Resolution Number 57 of 2020, and their guidance were issued on 19 August 2020 under Cabinet of Ministers Resolution Number 100 of 2020. The key purpose of ESR is to maintain and illustrate the presence of onshore and free zone companies who undergoes the respective Core Income Generating Activities with respect to the Economic Substance Test.
ESR Notification Filing
In accordance with 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 carry it the relevant Core Income Generating Activity. For ESR Notification Filing they are required to submit:
- The nature of respective Core Income Generating Activity being carried out by the Licensee or Exempted Licensee.
- The gross income of the Businesses carried out under Core Income Generating Activity.
- The end date of the financial year of the Relevant Activity.
- The supporting documents to provide additional evidence as required by the Regulatory Authorities.
The Exempted Licensees undergo ESR Notification Filing and along with that they submit supporting documents in order to verify their exempt position which is a necessary requirement of the Economic Substance Test.
Read also : Economic Substance Reporting & Guidance in UAE
Exempted Licensees that are tax residents in a jurisdiction outside the United Arab Emirates should submit one of the following documents along with filing its ESR Notification:
- A business outside the state in which it is a tax tenant is required to issue a letter or a certificate in which it stipulates that the business is the resident for the purposes of the tax of the business that is located in that jurisdiction.
- An assessment of business tax, a business tax demand, proof of payment of the business tax, or any additional supporting document, issued by the business that is located in a foreign jurisdiction in which the business claims to be a tax tenant.
However, when a business is unable to provide adequate evidences in order to verify their exempted position, the Regulatory Authorities changes 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
ESR Reporting UAE
Businesses are required to meet the requirements of Economic Substance Test and undergo ESR Reporting which includes submission of information and documentation mentioned in the Economic Substance Regulations within the period of 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.
Under ESR Reporting UAE the companies that undergoes the Relevant Activities are required to report;
- A relevant activity carried out by a business in the United Arab Emirates.
- Gross income of the business that is subjected to tax outside the United Arab Emirates.
- The date of the relevant financial year of the Licensee.
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 shows whether the Economic Substance Test of UAE is met.
Deadlines for Filing ESR Notifications and Report
- Licensees or Exempted Licensees that fail to submit their Notification along with the required supporting documents by the mentioned deadline will pay a penalty of AED 20,000 under Article 13 of Decision 57 for failure to provide a
- Licensees or Exempted Licensees that fail to re-submit their Notification by the mentioned deadline will pay a penalty of AED 20,000 in accordance with Article 13 of Ministerial Decision Number 57 which is regarding the failure to provide a
- in accordance with Article 14 of Ministerial Decision Number 57 the Licensee or Exempted Licensee that failed to submit their Economic Substance Report by the mentioned deadline will pay a penalty of AED 50,000 with respect to failure to provide an Economic Substance Report.
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