File ESR now for the Financial Year ending December 2023 as the last date is 30th June 2024 – Late Penalty is AED 20,000

File ESR Now For The Financial Year Ending December 2023 As The Last Date is 30th June 2024 in UAE – Late Penalty is AED 20,000

Following the assessment of UAE’s tax framework by the European Union Code of Conduct Group on the vertice of Business Taxation, the UAE government took a monumental step. Underpinned by its commitment as an active member of the Organisation for Economic Cooperation and Development (OECD), the UAE introduced Economic Substantial Regulations on 30th April, 2019. The purpose of launching the ESR was to ensure that UAE entities undertaking one or more ‘Relevant Activities’ report actual profits that are equivalent to the activity undertaken in the UAE. 

 

As per these regulations, an entity that conducts any sort of activity listed in the ‘Relevant Activities’ column and also earns income out of the same is required to submit a notification form to their respective authority within six months from the end of the reportable period, i.e., the financial year. With reliable auditing and accounting services s, concerned entities can submit this notification through the Ministry of Finance’s online ESR portal. To make this process easier, it is advisable to take guidance from accounting and auditing service providers in the country. 



Understanding Economic Substance Regulations (ESR)

While it’s clear that the ESR has mandated all firms in the UAE conducting Relevant Activities to file notifications and returns on the MoF portal, irrespective of their registration in the UAE or jurisdiction of incorporation, there can be confusion over the reportable period. To make this process simpler, let’s say your firm’s financial year ends on 31st December 2023, your due date for submitting the ESR annual report will be considered 30th June 2024. 

 

As the deadline for submitting the Economic Substance Regulation (ESR) Annual Report for the financial year ending 31st December 2023 looms around the corner, businesses during this particular hour find themselves at a critical juncture. In this scenario, ensuring compliance with the prescribed regulations is not merely a legal obligation but an important move to maintain the integrity of operations taking place within the country. 

 

With this report, an entity reveals crucial financial information to the Ministry of Finance, which includes, 

 

  • Basic Details
  • Type of Relevant Activity
  • Reportable Period 
  • CIGAs applicable 
  • Relevant Income 
  • Profits Earned 
  • Operating Cost of Relevant Activity cost 
  • Details of Parent
  • Number of full-time Employees 
  • Direction and Management of the Company Meetings  
  • Ultimate Parent Company and UBOs
  • Audit Report 

List of ‘Relevant Activities’

The list of Relevant Activities includes Banking, Insurance, Investment Fund Management, Lease Financing and Shipping Businesses. It also includes Holding Company Business, Intellectual Property Business, Distribution and Service Center and Headquarters Business. 

Exempt Licences

Exempt Licences are essentially entities that are not required to file a report as per the amended regulations. These entities can submit a notification, which confirms and substantiates their exempt status. The following entities are “Exempt Licences” under the amended ESR, 

  • All entities that are tax resident outside the UAE.
  • Investment Funds
  • Entities that are completely owned by UAE residents, which means they should not be part of a multinational group and carry out business activities only in the UAE.
  • A foreign company’s branch whose relevant income is subjected to corporate tax in some jurisdiction other than the UAE.

Penalties under the Economic Substance Regulations

Type of Offence Amount of Penalty
Upon the failure to submit the ESR Report, An entity has to pay AED 50,000.
In case a entity provides false and incomplete information, It is subject to a penalty of AED 50,000.
When an entity fails to meet the Economic Substance Test, For the 1st year, it has to pay AED 50,000, but for the 2nd consecutive year it is charged with AED 40,000.

A&A Associates: Your ESR Compliance Partner

A&A Associates, the top corporate tax consultants in Dubai is well-versed in the intricacy of ESR regulations. They offer expert auditing and accounting services and are familiar with the challenges businesses face in meeting compliance requirements. By making us your trusted partner, you get access to expert assistance which helps in navigating the complexities of ESR compliance, and ensuring that your business remains in adherence with the regulations.

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