ESR Reporting

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The United Arab Emirates (UAE) government adopted Economic Substance Regulations ("the Regulations") on April 30, 2019, in accordance with Ministers Resolution No. 31 of 2019. On September 11, 2019, the UAE government published Ministerial Decision No. 215 of 2019, which provided instructions on how to apply the regulations. Cabinet Resolution No. 58 of 2019, announced on September 4, 2019, included information about Regulatory Authorities in charge of managing Relevant Activities. 

The Regulations require UAE-registered enterprises that engage in one or more "Relevant Activities" to show adequate and acceptable economic substance in the UAE in relation to the activities they engage in. Businesses that have been licensed by the applicable licensing body to conduct a Relevant Activity in the UAE shall be referred to as "Licensees" throughout the rules.

The Regulations were enacted by the UAE government in order to honor its commitment as a member of the OECD's inclusive framework on Base Erosion and Profit Shifting (BEPS) and in response to an assessment of the UAE's tax reporting framework by the European Union ("EU") Code of Conduct Group on Business Taxation.


Evaluation of whether a company is engaging in a Relevant Activity 

The Regulations apply to registered enterprises in the UAE, including those operating in a Free Zone or Financial Free Zone, that engage in any of the Relevant Activities specified below:

Banking Businesses
Distribution and Service Centre Businesses
Headquarter Businesses
Holding Company Businesses
Insurance Businesses
Intellectual Property Businesses
Investment Fund Management Businesses
Lease-Finance Businesses
Shipping Businesses

If UAE-registered enterprises seek to assess whether they engage in a Relevant Activity and, as a result, must comply with the Regulations, they should take a'substance over form' approach. The aforementioned strategy compels business entities to examine not just the business operations listed on their registration certificate or commercial license, but also actions done within the fiscal year. 

A business entity does not have to be actively participating in any of the above-mentioned enterprises to be regarded to be carrying on a Relevant Activity.
Penalties and Fines for Noncompliance 

If a registered UAE firm that falls under the scope of ESR fails to inform the relevant regulatory body, the business entity will face a penalty ranging from AED 10k to AED 50k. 

If a business entity fails to provide complete or correct information in the context of the Economic Substance Regulations Reporting, the business entity will be regarded to have failed to demonstrate Economic Substance in the UAE and will face a penalty ranging from AED 10,000 to AED 50,000. 

If a business entity fails to demonstrate adequate Economic Substance in the UAE for a relevant fiscal year, and it is the business entity's first failure, it will be fined between AED 10k and AED 50k. Furthermore, the following information will be shared with a competent authority:

Parent company
Ultimate parent company
Ultimate beneficial owner

If a corporate organization fails to demonstrate Economic Substance for a second consecutive year, the information described above, as well as the following, will be exchanged: 

The entity would be fined between AED 100k and AED 300k, 
Business license would be revoked, suspended, or not renewed


How Can We Assist? 

If you have not yet assessed the implications of the Economic Substance Regulations on your UAE branch/company and require any of the following: 

Evaluation of whether you come within the scope of the Regulations Evaluation
Whether you are able to fulfill the Economic Substance Test 
Notification filing help 

Nadeem And Umendra Chartered Accountants has a team of highly skilled and experienced experts who will assist you in identifying whether you are affected by the Regulations and will advise you on the steps to take to ensure compliance with the Economic Substance Regulations.