What is ESR?
As a testament to its dedication to international tax standards and the fight against detrimental tax practices, the United Arab Emirates (UAE) has Economic Substance Regulations (ESR) which all companies registered in the UAE are required to folow. These regulations are specifically crafted to guarantee that entities conducting business in the UAE are actively participating in economic activities and establishing a tangible presence in the country. By fostering transparency, curbing tax evasion, and upholding the UAE's image as a resilient and law-abiding jurisdiction, the UAE’s ESR framework assumes a crucial role.
Notification and Reporting Obligations:
Under the UAE’s ESR framework, entities engaged in “relevant activities” must notify the Ministry of Finance of their existence and provide certain requested information. These notifications typically include details about the entity's activities, financial statements and the location of its core income-generating activities. Entities are required to submit these notifications through the Ministry of Finance's dedicated online portal within the specified deadlines as follows:
• The Notification must be filled within six months from the company’s financial year end; and
• An Economic Substance Report must be filled within 12 months from the company’s financial year end.
Who needs to submit?
If your business is (1) classified as a corporate entity (such as a limited liability company, public joint stock company, private joint stock company, etc.) or a partnership (limited liability partnership, general partnership, etc.) and (2) participates in any of the designated “relevant activities” within the UAE during the corresponding financial year, you are required to file the necessary notification with the Ministry of Finance.
“Relevant Activities”
● Banking Businesses
● Insurance Businesses
● Investment Fund Management Businesses
● Lease-Finance Businesses
● Headquarter Businesses
● Shipping Businesses
● Holding Company Businesses
● Intellectual Property Businesses
● Distribution and Service Centre Businesses
Fines and Penalties:
Failure to comply with ESR requirements and not filing the necessary notification, can lead to various penalties including monetary fines, license suspension or even license revocation.
Furnishing inaccurate or untrue details in the above named notification, may incur a fine of AED50,000. Deliberately presenting inaccurate or false information or incorrectly asserting an exemption from the ESR filing can lead to your company being considered non-compliant with ESR requirements and not having passed the Economic Substance Test (for the applicable Reporting Period) which could result in serious ramifications.
If you require assistance in identifying whether your company needs to file the ESR notification or not, our team has successfully assisted various clients in identifying their ESR obligations and advising on the best practice for their business (to remain compliant with applicable laws and regulations - not only with ESR filings, but with all compliance obligations in general). Get in touch with our internal compliance team for further assistance.
Feel free to reach out to us directly: +971 50 219 6070 or via WhatsApp message +971 50 453 4667.
Alternatively, you can reach us though our email: info@thecounselservices.com”