Economic Substance Regulations or ESR is one of the latest addition to the roster of regulations that the companies in the United Arab Emirates need to follow. According to the regulations, the 30th of June was the last deadline if the financial year ending for your company is the 31st of December. It does not matter what the location of your company is. Be it a Free Zone, a Mainland, or an offshore company, and Economic Substance Regulation is a necessary part to be followed by the business to avoid penalties and other forms of punishment in the future.
This article will provide you with a list of steps that a company can take, which will be of great use to the management while filing the Economic Substance Regulation Notification. These steps can be followed the next time the management is looking to fill the ESR notification in the UAE.
Steps required to be followed by the Company Management
Below are six steps that need to be followed by the management of a business. These steps will help the company fulfil all the Economic Substance Regulation requirements and assist the company in avoiding penalties and other punishments in the future.
- Find if ESR applies to your Company
The first step for management is to find out if the ESR regulation is applicable to the business. For this, the management needs to check if the company has conducted any relevant business activity in the previous financial year. There are many different activities added to the list of relevant activities in the UAE for the purpose of ESR. To know more about the relevant activities in the UAE, read out the blog titled ‘ESR Amendment – What is included in the Relevant Activities?’.
- Choose the present Status of the company
According to the Cabinet Decision No. 57 of 2020, there is two status which a business can have regarding ESR. The company can either be an Exempted Licensee, or it can be a Licensee. Only the Licensee needs to file for the Economic Substance Regulation. A business that fulfils any of the following requirements can qualify as an Exempted Licenses and is therefore exempted from the Economic Substance Regulation.
- If the licensee is a tax resident in a jurisdiction other than UAE
- An Investment Fund
- If the company is a part of the business group which carries its activities in the UAE
- If the company is wholly owned by a resident or a group of residents in the UAE
- The company is a branch of a foreign company, but the income of the company is taxable outside UAE.
- Provide all the necessary information
According to Article 8 of the Cabinet Decision, a company should provide the following information about itself to the concerned authority every year. The information includes the following:
- The business activity carried out by the business and did this business activity comes under relevant activities.
- The date on which the business was started and the relevant financial year-end.
- If the company is an exempted licensee, it should submit all the necessary documents that would provide evidence of its exempted status.
- The relevant authority can also demand any other company document if necessary.
- Information regarding the relevant income generated by the business.
- Submit the regulation data online
The government of the UAE has made it simple to file for ESR. It can be filed through an online portal designed by the Ministry of Finance (MoF). In order to access this portal, the companies must set up a corporate account. The information provided in the corporate account will be used for the purpose of filing the ESR.
- What to do if incorrect data is filed
In case the business makes an error in the filing of the ESR, then the business may have to face a penalty of up to AED 50,000. In case the company fails to fill the ESR at the stipulated time, then the company can face a penalty of up to AED 20,000.
- Provide evidence of Exempted status
If a company is exempted from filing the ESR but fails to provide relevant information and documentation to support this claim, then the company will be judged as a licensee. This means that the company will not fill the file ESR and will be subjected to a penalty of AED 50,000 which will be increased to AED 400,000 in the subsequent year.
These are some of the reasons due to which the management should consider taking the assistance of a consultant. This consultant will make sure that the correct information is provided related to the company's status, and if the business needs to file for ESR, then the correct information is provided to the relevant authority.
If you are looking for consultants to manage the ESR requirements of your company, then you should look into the services provided by JAXA Chartered Accountants. JAXA is one of the top financial firms in the UAE and provides its services in Dubai, Sharjah; and will also help in VAT return filing in Abu Dhabi. For more details on the services provided by JAXA, feel free to Contact Us. We will be happy to assist you in your business journey.