Economic Substance Regulation UAE | ESR Reporting Dubai, UAE
Economic Substance Regulation UAE
CLA Emirates [formerly Emirates Chartered Accountants Group ]- UAE Economic Substance Regulation(ESR) Advisory and ESR Filing Services in Dubai, UAE.
Call for Consultation
CA Dhara Yagnik I Associate Director
M: +971 56 5956836
E: Dhara.Yagnik@claemirates.com
- Banking Business
- Insurance Business
- Investment Fund Management Business
- Intellectual Property Business
- Lease-Finance Business
- Shipping Business
- Headquarters Business
- Holding Company Business
- Distribution & Service Centre Business
Exempt Licensee as per Cabinet Resolution 57/2020
The Scope of the Exempted Licensee as per Cabinet Resolution No. 57/2020 is extended. The following entities fall under the Exempted Licensee:
- An Investment fund
- A licensee that is a Tax Resident in a Jurisdiction other than the UAE
- A licensee that is wholly owned by one or more UAE residents and meets the following conditions:
» An entity should not be part of the MNE Group
» An entity should carry on business only in the UAE - A licensee that is the branch of a foreign entity, the Relevant Income of which is subject to tax in a jurisdiction other than UAE
How to meet the Economic Substance Test?
- Check whether the entity conducts/ performs Core Income-Generating Activity (CIGA) in the State.
- Check whether the entity is directed and managed in the State in that activity.
- Check whether the company employs an adequate number of qualified full-time employees or incurs an adequate level of operating expenditure and adequate physical assets in the state.
- If CIGA is conducted by another entity for the relevant licensee, then check whether the Licensee has full control and is be able to monitor the activities of another entity.
Authorities as per CRN 57/2020:
Functions of Authorities as per ESR
1. Regulatory Authority:
- Collect information through Notification, Substance Report, and supporting documents
- Review the information obtained from the Licensee & Exempted Licensee
- Assess the determination of the Exempted Licensee
- Other functions as per Article 4 of the Cabinet Resolution 57/2020
2. National Assessment Authority:
- Federal Tax Authority is hereby appointed as the National Assessing Authority
- To undertake assessments to determine the Economic Substance Test
- Impose the administrative penalties
- Hear and decide on appeals
- Other functions as per Article 5 of the Cabinet Resolution 57/2020
3. Competent Authority:
- Providing information of the Licensee or Exempted Licensee that has not met the Substance test to the Foreign Competent Authority
- Providing information in relation to high-risk IP Business Licensee to the Foreign Competent Authority
- Such other functions as per the Resolution
Why is the Assessment of Activities important?
Assessing whether the Entity is engaged in Relevant Activity will determine whether the Entity is required to comply with the Economic Substance Regulation in the UAE. The substance over form approach is to be considered in assessing the activities. It is significant to note that even Passive Income from any of the activities falling within the definition of relevant activity would require an entity to comply with the regulation. Going wrong with the Assessment may lead to the filing of inaccurate information with the Authorities. This may further lead to penalties.
ESR Notification should be filed by all Licensees and Exempted Licensees annual,y providing the following details:
- Date of commencement and end of the Financial Year
- Relevant Activity being carried out
- Whether Revenue generated from such Relevant activity during the relevant Financial year
- Other information as required by the Regulatory Authority
Exempted Licensee to also required to provide all the information and documents for claiming the status of Exempted Licensee.
Notification must be filed within 6 months from the end of its Financial Year & ESR Report must be filed within 12 months from the end of its Financial Year of the Licensee or exempted licensee. For e.g:
| Financial Year-end | ESR Notification on MoF Portal | ESR Reporting on MoF Portal |
|---|---|---|
| Dec 2024 | Extended deadline by 31st Jan 2026 | Extended deadline by 31st Jan 2026 |
| 31st Mar 2025 | Extended deadline by 31st Jan 2026 | 31st Mar 2026 |
| 30th Jun 2025 | Extended deadline by 31st Jan 2026 | 30th Jun 2026 |
| 30th Sep 2025 | Extended deadline by 31st Jan 2026 | 30th Sep 2026 |
Penalties in case of non-compliance with ESR:
| Particulars | ESR Notification | ESR Reporting |
| Failure to submit before Due date | AED 20,000 | AED 50,000 |
|
Submission of Inaccurate or Incorrect Information |
AED 50,000 | AED 50,000 |
The penalty in case of failure to submit the notification
An administrative Penalty amounting to AED 20,000 shall be imposed on Licensee or Exempted Licensee who has failed to submit the notification or any information or document required to be filed
How can CLA Emirates support you with an assessment on Economic Substance Regulation in the UAE?
- If Economic Substance Regulation applies to your company, then we support and guide you to check whether the criteria for the satisfaction of Economic Substance are met or not.
- If the criteria are not met, then identify the gaps. Providing suggestions and improvements to ensure compliance with the Economic Substance Regulation in the UAE.
- To assist the Licensee in filing the Information Notification with the Relevant Authorities.
