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.

What is required under the Economic Substance Regulations?

Every Licensee which carries out one or more of the Relevant Activities must submit a notification to the appropriate regulatory authority as set out in the Economic Substance Regulations.

In addition, for every financial period, any Licensee that carries out one or more of the Relevant Activities and derives income from the Relevant Activity in the UAE will be required to satisfy an “economic substance test” and submit an economic substance report with the appropriate regulatory authority within 12 months from the end of the relevant financial period.

An exemption applies to companies that are at least 51% directly or indirectly owned by the Federal or an Emirate government or a UAE-based government body or authority.

How can we help?

As part of the ESR process, Gulfpro Accountants will help you prepare your ESR Notification, which must be shared with the Authority. As part of our services, we will handle all the processes for filing your ESR Notification for you with confidentiality, integrity, and in a timely manner.

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