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Economic Substance Regulations Services in UAE(ESR)

The (ESR) Economic Substance Regulations in UAE  compliance requirements can be challenging for companies. That do not have the in-house expertise, time, or knowledge to devote to them.

This challenge is more significant when you consider that violations of the ESR can lead to the cross-border sharing of information with other governments. And result in the suspension of the UAE license. It is also worth noting that it can lead to penalties ranging from AED 20,000 to AED 400,000 for misreporting.

Unmanaged ESR compliance can result in heavy government sanctions, license suspension, and information sharing with foreign governments. We understand the consequences of failing to comply with the ESR in the UAE. And the financial loss and loss of reputation that result if not managed.

We have proactively assisted our clients in meeting their ESR and helping them save money and their reputation. Together we can manage ESR obligations in a timely and efficient manner.

ESR in Dubai | Economic Substance Regulations

What are the Relevant Activities?

The following are considered “Relevant Assets” under the Regulation:

  • Banking.
  • Insurance.
  • Fund Management.
  • Lease-finance.
  • Headquarters.
  • Shipping.
  • Holding Company.
  • Intellectual Property (IP).
  • Distribution and service center.

Economic Substance Regulations ESR Target for UAE:

The main objective of the rules of economic substance regulations is to regulate the tax obligations in the UAE through competent authorities. This is because many organizations, especially multinationals. Save a lot of taxes and take advantage of various low-tax jurisdictions. This amended regulation ensures that a company has a physical presence here and carries out all its business activities in the UAE. And not just a license showing an income in this country.

Three ESR in UAE:

Ensuring compliance with UAE Economic Substances Regulations has become mandatory for mainland and free zone companies in the UAE. For this, companies must assess the impact of regulations on their operations and ensure ESR compliance. For their relevant activities before demonstrating economic substance to relevant regulators. The process of demonstrating Economic Substance takes place in three stages

Notification of Economic Substance in UAE:

All companies in the UAE are required to file an ESR notice with the appropriate regulatory authority. Businesses must notify the authority if they carry out their economic activity in the UAE and derive income from it. For example, a company operating in the Jebel Ali Free Zone of Dubai must submit the UAE. Economic Substance Notification to the Jebel Ali Free Zone Authority (JAFZA). Which is the regulatory authority. If the company is proven to carry out the relevant business. The UAE Economic Substances Regulations apply and must undergo the UAE Economic Substance Testing. The filing of the UAE Economic Substance Notification must be done following the standards specified by the regulatory authorities.

As incorrect or false information in the notification would lead to a penalty. Companies are advised to consult the Dubai ESR Notice service provider’s archiving services. United Arab Emirates to ensure compliance.

Test on the Economic Substance of UAE:

After submitting the UAE Economic Substance Notification. Companies must undergo the UAE Economic Substance Test to demonstrate adequate economic substance in the relevant activities. They carry out within the country. During the economic substance test, continental UAE companies. As well as free zones. Must demonstrate the following:

  • Conduct the Core Income-Generating Activity (CIGA) in the UAE.
  • Be directed and managed in the UAE.
  • Adequate full-time employees, operational expenditure, and physical assets present in the UAE to conduct the CIGA.

Test UAE Economic Substance Report:

Companies are required to submit the annual economic substance report to the regulator after demonstrating adequate economic substance in the economic substance test. The UAE Economic Substance Report must include details of relevant economic activity, income, expenditure, and activities. And indicate whether the Economic Substance Test is met. The annual report on economic substance must be submitted within 12 months following the end of each fiscal year. The ESR report must be prepared to meet the required standards as it would impact the company’s operations in the UAE. And therefore you can seek the assistance of efficient ESR service providers in Dubai.

Failure to demonstrate economic substance in the first year. Or the provision of incorrect information may incur a penalty of between AED 10,000 and AED 50,000. For recidivism in the second consecutive year, a penalty of between AED 50,000 and AED 300,000 will prevail. In addition, the UAE can exchange information about the company with the foreign authority of the parent company. And the ultimate beneficial owner. In addition, the commercial license can be suspended, withdrawn, or not renewed.

MASAR’s ESR Compliance Services:

Ensuring compliance with the UAE Economic Substances Regulations (ESR) has become an absolute necessity for land and free zone operations in the UAE. Failure to comply with the ESR requirements would affect the company’s operations and cost investors a lot. However, ensuring ESR compliance is currently a difficult task for companies, as it is a rather complex procedure. It is in this situation that companies would seek the assistance of a reputable UAE. ESR compliance service provider such as MASAR Chartered Accountants.

MASAR offers the following core ESR advisory and compliance services in the UAE:

  • Assessing whether the companies are subject to the Economic Substance Regulations.
  • File the annual Economic Substance Notification with the regulatory authorities.
  • Prepare and submit the Economic Substance Report to the authority annually.
  • Recommendations on the Economic Substance test if the company is not satisfying the same.

The assistance of MASAR’s highly qualified accountants in Dubai is important for companies. As non-compliance and improper submission of the economic filing notice. And a report would result in heavy penalties as mentioned in the article. Aside from the penalties, failure to comply can also result in the revocation of the business license. MASAR is committed to ensuring that companies can avoid such unforeseen events and ensure the smooth running of the business in the UAE.