ESR Report for FYE 31st Dec 2020:
In accordance with the Cabinet of Ministers Resolution No.31 of 2019, All companies whose:
- Financial year ended on 31st December 2020;
- have conducted and generated income from any of the nine Relevant Activity’s during the period; and
- not categorized under the “exempted category”
needs to submit their Economic Substance Regulations (ESR) Annual Report by 31st December 2021.
As per the Cabinet Resolution no. 57 of 2020, Penalties for non-compliance with the ESR include financial penalties for the failure to submit an ES report is AED 50,000.00 and failure to provide accurate or complete information is AED 50,000.
Please note that the Federal Tax Authority has initiated audits.
“Compliance with ESR Test is crucial”:
- Entities should review their compliance with the applicable ESR tests, i.e., Directed and Managed, Core Income Generating Activities (CIGAs) are conducted in UAE and have adequate no. of qualified full-time employees, adequate premises and sufficient physical assets in UAE.
- The entities are required to demonstrate the supporting documents where an entity’s normal operations and in particular, ability to comply with Directed and Managed test was affected by COVID 19 during the FY.
Failure to demonstrate sufficient ES in the UAE (first failure is AED 50,000 and second consecutive instance of failure is AED 400,000). Non-financial penalties include deemed failure to demonstrate substance and information exchanges with certain foreign authorities.
ESR Notification for FYE 30th June 2021:
Businesses with a financial year of 30th June 2021 are reminded that the due date for the ESR notification is 31st December 2021 if they performed a Relevant Activity during the financial year.
This notification would be required even if the same activity was performed and notified for the financial year ended 30th June 2020.
A Licensee or exempted licensee that fails to submit an ESR notification in the UAE is liable to pay an administrative penalty of AED 20,000 as per Article 13 of Cabinet Resolution no. 57 of 2020 concerning economic substance requirements.
SR notification and reporting are two separate filings and is an annual obligation for licensees within the scope of ESR. Below is the summary of the upcoming deadlines for reference:
|Economic Substance Regulation (ESR) Deadlines|
|Financial Year End||Notification Filing deadline||ESR Report filing deadline|
|Dec 2020||30 June 201||31 December 2021|
|June 2021||31 December 2021||30 June 2022|
All entities are encouraged to, as soon as possible, determine their upcoming ESR filing obligations for any completed FYs and take necessary steps to ensure filings are made within the applicable deadlines and all necessary supporting documentation is available at the time of the filing.
For any enquiry related to economic substance regulation, please feel free to reach out to us for further consultation.
Please do feel free to contact us for additional information 04-325 8361, or visit the NUFCA website soon and get hold on a Free-Consultancy session with us!