Make Sure to Comply With Them Quickly
Businesses in the UAE that have a financial year ending 31st May 2022 and are involved in a "Relevant Activity" during that financial year must file an Economic Substance Regulations (ESR) notification by 30th November 2022.
If a Relevant Activity is undertaken by a business with a financial year ending 30th November 2021, an ESR Report must be filed by the 30th of November 2022.
Who can file an ESR Notification?
Any UAE company (onshore, offshore or free zone) carrying out any of the ‘Relevant Activities’ during the year must file a notification, except as prescribed by the applicable licensing authority.
What are the Activities under ESR that are considered relevant?
In 2019, the UAE introduced an ESR in response to the EU Code of Conduct Group on Business Taxation's assessment of the UAE's tax framework as part of its commitment to the OECD Inclusive Framework.
A subsequent amendment was made to the ESR, and guidance was issued. According to the ESR, UAE onshore and free zone companies and some other business forms operating in the UAE are required to maintain and demonstrate an adequate "economic presence" in the UAE.
Among the relevant activities are:
- Banking business
- Insurance business
- Investment fund management business
- Lease finance business
- Headquarter business??
- Shipping business
- Holding company business
- Intellectual property business
- Distribution and Service center business?
Within the scope of the ESR, licensees must file two separate reports and notify the ESR each year.
A company that falls within the scope of the ESR must report to the regulatory authority within 12 months of its financial year whether it has engaged in any Relevant Activity (and whether it has generated income from that activity). Entities are exempt from reporting if they do not earn income from a Relevant Activity or meet the conditions for exemption. However, the notification form must be submitted if they have income from a Relevant Activity.
Are there any Penalties?
Failure to submit the ESR report and ESR Notification within the deadline will result in penalties ranging from AED 20k to AED 50k. Penalties of this range could hurt the company's reputation and hit them financially; therefore, businesses must file ESR Notifications on time.
To curb non-compliance with ESR, the UAE's Federal Tax Authority (FTA) conducts internal audits and imposes non-financial penalties such as exchanging data with selected foreign governments.
How can AMCA help?
As part of the ESR process, AMCA will help you prepare your ESR Notification, which must be shared with the Authority. As part of our services, AMCA will handle all the processes for filing your ESR Notification for you with confidentiality, integrity, and in a timely manner.