CORPORATE COMPLIANCE SERVICES

ESR

ECONOMIC SUBSTANCE REGULATIONS

ESR ASSESSMENT NOTIFICATION SUBMISSION

Introduction

In the United Arab Emirates (UAE), adherence to the Economic Substance Regulations (ESR) is a critical compliance requirement for businesses operating within its jurisdiction. Introduced through Cabinet Resolution No. 31 of 2019 and further refined by Cabinet Resolution No. 57 of 2020 and Ministerial Decision 100 of 2020, ESR mandates that entities conducting certain defined activities, known as “Relevant Activities,” demonstrate a substantial economic presence in the UAE.

Overview

ESR Assessment Submission: Entities not engaged in any Relevant Activities as defined under ESR are typically exempt from the Economic Substance Test. However, all businesses are required to evaluate their operations to ascertain whether they partake in any Relevant Activity, given the broad nature of the definitions. Even if an entity concludes that it does not engage in Relevant Activities, it must file an Economic Substance Notification with the pertinent regulatory authority. This filing acts as a formal assertion of the company’s operational status concerning ESR and aids regulatory bodies in ensuring compliance across the corporate spectrum.

Reporting Obligations and Compliance: While entities exempt from conducting Relevant Activities might not undergo the Economic Substance Test, they are still bound by reporting duties within the ESR framework. These obligations include declaring their assessment and findings to regulatory authorities. Neglecting to submit this notification may lead to penalties, underscoring the importance of thorough compliance verification by regulatory bodies.

ESR Compliance Assessment Service: Our service offers a comprehensive review of your entity’s compliance with ESR, mandated by the UAE Ministry of Finance. It is designed to evaluate your business’s alignment with ESR, identify improvement areas, and provide initial recommendations for bolstering your economic substance in the UAE. This assessment, facilitated through a detailed questionnaire, is the foundational step towards ensuring your entity not only complies with ESR but also confidently manages compliance complexities.

This assessment aims to prepare entities for ESR compliance, including ESR filing. However, it does not cover additional services or audit representation, laying the groundwork for these future requirements.

ESR COMPLIANCE AND REPORTING PROCESS IN THE UAE

Introduction and Importance of VAT Compliance

For businesses operating within the United Arab Emirates (UAE), compliance with the Economic Substance Regulations (ESR) is paramount. The ESR framework, established by Cabinet Resolution No. 31 of 2019 and further detailed in Cabinet Resolution No. 57 of 2020 and Ministerial Decision 100 of 2020, mandates that UAE entities conducting specified “Relevant Activities” demonstrate a significant economic presence in the country.

VAT Compliance Review, Filing Process and Professional Assistance

Importance of ESR Reporting: Entities that do not engage in Relevant Activities as defined by ESR might bypass the Economic Substance Test but are obligated to assess their operations to determine their status. Despite not engaging in Relevant Activities, such entities are required to file an Economic Substance Notification. This step is critical for confirming their non-engagement status to regulatory authorities, facilitating oversight and compliance enforcement.

Compliance Obligations Under ESR: For entities that determine they are conducting Relevant Activities, fulfilling the ESR reporting obligations is a must. This involves not just undergoing the Economic Substance Test but also submitting detailed reports on their operations. These reports are crucial for regulatory bodies to ascertain that entities maintain the requisite economic presence in the UAE corresponding to their business activities. Businesses are advised to meticulously document their activities and seek expert consultation on ESR compliance to navigate the regulatory landscape effectively. Proper adherence to these regulations, including the timely submission of reports and notifications, is essential to avoid penalties and affirm compliance.

ESR Reporting Service: We provide a thorough ESR Reporting Service designed to assist your business in aligning with the ESR mandates stipulated by the UAE Ministry of Finance. This service is foundational in identifying how your entity aligns with ESR obligations, pinpointing areas for enhancement, and offering strategic advice on solidifying your economic presence within the UAE. While our service prepares entities for comprehensive ESR compliance, it is tailored to the filing process and does not encompass additional consulting or representation during audits. It sets a critical groundwork for managing these aspects efficiently.

Reporting Timelines: Entities performing Relevant Activities are obligated to file a notification through the Ministry of Finance’s online portal within six months following the end of their financial year, detailing the nature of activities and associated incomes. For multi-branch entities within the UAE, a singular consolidated notification is required. Entities must also submit an exhaustive ESR report on the online portal within twelve months after the close of the relevant financial year, ensuring regulatory authorities have full visibility into their economic substance in the UAE. Adhering to the ESR reporting requirements is crucial for demonstrating compliance with the UAE’s regulatory framework, underscoring the importance of a proactive and informed approach to ESR compliance for businesses operating in the UAE.

Legal Compliance and Disclaimer

Our guidance related to Economic Substance Regulations (ESR) is deeply rooted in the legal framework established by the UAE, specifically under Cabinet Resolution No. 31 of 2019, as amended by Cabinet Resolution No. 57 of 2020 and Ministerial Decision No. 100 of 2020. These documents, along with guidance issued by the UAE Ministry of Finance, provide the foundation for our ESR compliance services. Our strict adherence to these regulations ensures that our guidance is not only accurate but also fully in line with the UAE’s requirements for economic substance, offering our clients reliable support in navigating ESR obligations.

The information provided does not constitute a direct or implied recommendation or endorsement of any strategy, decision, or action. Clients are encouraged to consult with tax, legal, or professional advisors to determine the applicability of the information to their specific circumstances. Europe Emirates Group expressly disclaims any liability for errors or omissions in this information or for any loss or damage suffered by any person as a result of reliance on the information provided. Use of and reliance on the information is at the user’s own risk.