As per ESR regulations, the notification should be filed within 6 months after the financial year-end, and report (including demonstration of substance) should be filed within 12 months after financial year-end for example entities with 31 December 2020 FYE had to file their notification by June 30, 2021, and they have to file their report by December 31, 2021. All the relevant filing has to be done via the Ministry of Finance portal.
So, it is a reminder to all in-scope entities.
The deadline is December 31, less than a week away!
What we have seen so far authorities have begun applying penalties for late filings and generally only provide a short period for businesses to file appeals or settle the payment.
Further, following the Cabinet Resolution, Number 57 of 2020 concerning Economic Substance Regulations (the ESR), the Federal Tax Authority (FTA) acting as the National Assessing Authority has formally commenced the assessment of ESR Reports and relevant supporting documents. and they have begun requesting clarifications on the information submitted in some cases providing a short period for entities to address queries and provide documentation to substantiate the filing.
Entities should ensure that the appointed point of contact can access and address requests from the authorities
NADEEM AND UMENDRA CHARTERED ACCOUNTANTS’ SERVICES WITH REGARDS TO ESR:
1) Impact (re)assessment:
We evaluate if the relevant reportable period the entity
· Falls under the ESR scope
· How/which Relevant Activities are conducted.
· If the entity can benefit from an exemption
· What relevant activities will require demonstration of substance
2) Gap assessment
We evaluate does the entity has the “adequate” substance and subsequently “adequate” proof to demonstrate this to the Authorities (if and when asked)? This includes suggestions to improve/enhance an entity’s substance
3) Filing support
We assist in the filing of accurate provision of the right information promptly to avoid administrative and financial penalties
4) Appeals and dispute support
We assist in the filing of accurate provision of the right information promptly to file appeals and settle disputes with authorities with regards to “adequate substance” This includes suggestions to improve/enhance entity’s substance
5) Benchmarking Assessment
Perform a benchmark for businesses to compare themselves against businesses of a similar industry, scale, and nature to obtain an indication of whether they may have a concern demonstrating adequate substance to the authorities
A SHORT RECAP OF ESR:
It’s been a while since the UAE issued the economic substance regulations (ESR), introducing a requirement for UAE in-scope entities to maintain an adequate economic presence in the UAE, relative to the activities being undertaken.
Since the introduction of the ESR, there have been several amendments and developments. All in-scope entities are advised to be aware of and up to date with the requirements to be in compliance with the ESR and avoid administrative and financial penalties on an annual basis
If the entity is an onshore as well as off-shore or the free zone entity, a branch or representative office or any other business forms established or licensed in the UAE conducts at least one of the nine relevant activities needs to file a notification and If an entity conducts relevant activity from which income is also generated needs to file a report (and subsequently demonstrate adequate substance) for that period.
Following are relevant activities.
1. Banking Businesses
2. Insurance Businesses
3. Investment Fund Management Businesses
4. Lease-Finance Businesses
5. Headquarter Businesses
6. Shipping Businesses
7. Holding Company Businesses
8. Intellectual Property Businesses
9. Distribution and Service center Businesses
Note: A company can claim exemption from the report if it is 1) an investment fund 2) a tax resident in a jurisdiction other than the UAE 3) wholly-owned by one or more residents in the UAE it is not part of MNE Group and carries out business in the UAE 4) a branch of the foreign entity which relevant is subject to tax jurisdictions other than UAE. To claim the exemption the entity must have to comply and submit certain requirements set by FTA.
PENALTIES AT GLANCE:
|Failing to file||Providing Inaccurate Information||Failed in Demonstrating sufficient economic substance in the UAE for the relevant period|
The penalty of AED 20,000.00
|The penalty of AED 50,000.00 and will be adeemed a failure to demonstrate economic substance in the UAE||First-year of failure: The penalty of AED 50,000.00 and Information exchange with the foreign competent authority|
The penalty of AED 50,000.00 and will be deemed a failure to demonstrate economic substance in the UAE
|Second consecutive year of failure: The penalty of AED 400,000.00k, Information exchange with the foreign competent authority and Trade/ commercial license could be suspended, withdrawn, or not renewed|
Failing to file Providing Inaccurate Information Failed in Demonstrating sufficient economic substance in the UAE for the relevant period
The penalty of AED
20,000.00 The penalty of AED 50,000.00 and will be adeemed a failure to demonstrate economic substance in the UAE First-year of failure: The penalty of AED 50,000.00 and Information exchange with the foreign competent authority
The penalty of AED
50,000.00 and will be
deemed a failure to
substance in the UAE
Second consecutive year of failure: The penalty of AED 400,000.00k, Information exchange with the foreign competent authority and Trade/ commercial license could be suspended, withdrawn, or not renewed
AUTHORITIES AND THEIR KEY RESPONSIBILITY:
1) Regulatory Authority
Free Zone and relevant mainland authorities as listed in the ESR Primary responsible for the collection and verification of information regarding their Licensees, and assisting the FTA in carrying out its role as National Assessing Authority
2) National Assessing Authority
The UAE FTA was appointed as the National Assessing Authority for the ES Regulation. Responsible for assessing and enforcing compliance of UAE businesses with the Economic Substance Test and Imposing penalties
3) Competent Authority
The UAE Ministry of Finance is primarily responsible for the exchange of information with Foreign Competent Authorities,
All ministries and other governmental authorities (federal or local) shall provide any information and documentation in respect of a Licensee upon request to the Regulatory, National Assessing, and or Competent Authorities.
Thanks for reading.