The Sharjah International Airport Free Zone is one of the favourite free zones for businessmen and entrepreneurs all over the world. This free zone strives to provide the best possible services to the members along with world-class infrastructure. It is currently the home for more than 5,500 companies from all around the globe.
The introduction of the Economic Substance Resolution (ESR) has also affected the SAIF Free Zone. According to the Economic Substance Regulations requires that any business entity in the free zone which carries out ‘relevant activities’ must report it to the management of the free zone.
SAIF ZONE
SAIF Zone is short for Sharjah International Airport Free Zone and is a vast Free Zone with a number of features which attract businessmen from all over the world. This free one was established in the year 1995 and currently provides a home to more than 5,500 companies, both international and local. These include industries like IT Industry, Trading, Import-Export, Media Industry and many more.
The business incorporation services in the free zone will help you to form a company quite easily and without any. The free zone also provides various other services such as 100% repatriation of profits and capital of the company, 100% ownership and free transfer of funds.
In recent events, the companies established in the free zone also need to assess themselves according to the regulations regarding the Economic Substance. Let us know more about ESR.
What are Economic Substance Regulations (ESR)?
As a response to the assessment made by the European Union Code of Conduct Group of Business Taxation and a member of the OECD Inclusive Framework, the United Arab Emirates introduced a regulation related to Economic substances on the 30th of April 2019. According to this resolution, all the business entities in the United Arab Emirates which carry out the mentioned relevant activity in order to maintain an economic presence in the country.
SAIF ZONE Authority is declared the governing authority for the companies which have been set up in the SAIF Free zone. The Authority has also notified the Due date which needs to be followed to file the ESR notification in the SAIF ZONE. The Deadline for submitting the ESR notification for the financial year 2019 is on or before 30th June.
After submitting the notification, if the company conducts a relevant activity then it must conduct an Economic Substance test to see which criteria its not able to fulfil. Once the result of the test is know the company must work to meet the criteria and must submit the report before 31st of December.
What are the Relevant Activities?
As per the Cabinet Resolution No. 31 of 2019, a “Relevant Activity” will consist of one or more than one of the following:
- Insurance Business
- Banking Business
- Lease or Finance Business
- Shipping Business
- Intellectual Property (IP) Business
- Headquartered Business
- Holding Company
- Distribution and Services Centre Business
- Investment Fund Management Business
Any business entity in the SAIF Zone which conducts one or more activities which have been mentioned above must notify the Authority (here SAIF ZONE Authority). The authority will not be held responsible for making any assessment on how to apply the ESR regulations.
The notification which will be sent to the authority will include the following:
- If the licensee is exempt because of government ownership
- If the licensee conducts a relevant activity as mentioned above
- Whether or not the licensee generates any revenue from the said relevant activities
- What are the licences financial year-end date?
- If the income generated by the licensee is partially or totally taxed in any tax system outside the United Arab Emirates
Penalties in case of Non-Compliance
In case any licensee is unable to fulfil the requirements of the ESR test or provides incorrect information either knowingly or by mistake, then the penalties mentioned below are levied on the business entities:
As per Article 11 of the Cabinet Resolution No. 31 of 2019, a penalty of not less than 10,000 dirhams (AED 10,000) and not exceeding AED 50,000 is levied if the authority is failed to be notified. This penalty is also levied if the complete information about the company is not provided to the authority.
- The failure of a business entity to comply with the ESR regulation may also result in the Exchange of Information with a Competent Foreign authority and can lead to the suspension, non-renewal of its registration or its revocation. It can also lead to a penalty of AED 10,000 to AED 50,000.
If the licensee does not meet the criteria set by the ESR regulations, the authority needs to notify the licensee of the following matters:
- The business standards have not been met
- Reasons due to which the authority has taken such decision
- What is the penalty decided by the authority? The penalty will be decided according to clause 1 of the Article.
- The date on which the judgement is made
- The steps which need to be done in order to complete the requirements
- In case the licensee has the feeling that a wrong judgement has been passed, it can make an appeal under Article 13 of the resolution
The penalties present stress on the fact that there is a need for a professional business consultant as these Economic Substance Regulations are a new addition, and there is confusion among the people related to ESR. If there is the slightest mistake or difference in providing information about the company, then it can face a lot of problems.
Availing the services of a business consultant is very important as the consultant will understand your business and accordingly file the reports. Many of these business consultants can also provide assistance in the day to day business activities and other important financial activities of the company such as Accounting, Auditing, Payroll etc.
If you are looking to avail such services related to ESR or any other financial services in general in the UAE, then you can look into the services provided by JAXA Chartered Accountants. not only will they help in the assessment and filing of the ESR Report, but can also provide assistance in other Accounting and Auditing related services. For more information on the services provided by us, Contact Us. We will be happy to provide you with answers related to our services.
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