Tax Alert: Appeal for Economic Substance Regulations Penalties

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Tax Alert: Appeal for Economic Substance Regulations Penalties

FTA has issued Economic Substance Regulations Appeal user-guide in August 2021. The new guide assists t Licensees in submitting an appeal request to the Federal Tax Authority (National Assessment Authority) related to Administrative Penalties levied concerning Economic Substance Regulations.

economic substance regulations

The key takeaways from the User Guide:

What is the appeal?

The appeal request is one of the services provided based on Article (17) of the Cabinet of Ministers Resolution No 57 of 2020 concerning Economic Substance Requirements. Whereas, the licensee or the exempted licensee may appeal to the National Assessment Authority on its decision to impose an administrative penalty on him for any of the following grounds:

  • It did not commit the violation attributed to it;
  • The administrative penalty imposed is not proportionate to the violation;
  • The administrative penalty imposed exceeds the limited prescribed hereunder.

How to apply for an appeal?

The licensee or the exempted licensee must submit an appeal request through the Ministry of Finance Portal by login into their existing account.

An appeal is submitted for each administrative penalty separately. The applicant must add a simplified explanation of the reason for submitting the appeal request and Attach the supporting documents to the appeal request. On submitting the appeal, FTA might call for additional documents which need to be provided within five working days of requesting such details.

Timetable of appeal related to Economic Substance Regulations:

Sr. No. classification/request status Timeframe
1 Submit for Appeal (40) forty working days from the imposed date of the fine
2 Issue a Decision of the appeal (40) forty working days fromthe date of meeting all requirement
3 Inform Licensee of the decision (5) working days from the date of issuance of the decision
4 Document Request by FTA (5) working days from the date of requesting documents
5 Final period to pay the fine (40) Forty working days from date administrative penalty is levied

Economic Substance Regulation Penalties

In addition to exchanging information with foreign authorities, the following penalties may be imposed by the FTA:

Sr. No. Particulars Penalty Amount Time Frame
1 Failure to file the ESR Notification within 6 months from the end of the financial year AED 20,000 The said penalties can be imposed within 6 years from the date of committing the violation, unless the Licensee or the Exempted Licensee committed a fraudulent act that resulted in inability of the the FTA to impose the said penalties within the stipulated period.
2 Failure to file the ES Report within 12 months from the end of the financial year AED 50,000
3 Failure to meet the Economic Substance Test AED 50,000
4 Repeatedly committed one of the two violations mentioned in points 2 and/or 3 during the following financial year AED 400,000
5 Providing inaccurate information AED 50,000 A penalty for this violation might be imposed within 12 months from the date on which the FTA became aware of the violation unless the Licensee or the Exempted Licensee committed a fraudulent act which resulted in the inability of the the FTA to impose the said penalties within the stipulated period.

Additional penalties such as suspending, revoking, or not renewing the Licensee’s or Exempted Licensee’s trade license could also apply. Want to hire tax agent in Dubai, Get in touch with us.

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