The Economic Substance Regulations (ESR) play a pivotal role in shaping Dubai’s business landscape, aiming to ensure that entities involved in “Relevant Activities” within the Emirate demonstrate tangible economic substance. A crucial facet of compliance is the annual ESR Notification, serving to apprise authorities of your Relevant Activities and your commitment to adhering to ESR standards. Accurate and timely submission of this Notification is imperative to avoid penalties and underscore good business governance. This comprehensive guide elucidates the process of submitting the ESR notification to the Ministry of Finance and emphasizes how adherence to Economic Substance Regulations in the UAE can facilitate the seamless presentation of this Notification to the pertinent authorities.
What purpose does the ESR notification serve?
The primary objective of the Notification is to provide Regulatory Authorities with fundamental information about Licensees and their activities in the United Arab Emirates during the applicable Reportable Period. The details in the Notification serve as a prerequisite for simultaneously filing an Economic Substance Report, if required.
Who is obligated to submit the EDR notification in the UAE?
If, during the relevant Financial Year (refer to Section C, Question 1), you, whether as a corporate entity (e.g., Limited Liability Company, Public Joint Stock Company, Private Joint Stock Company, etc.) or as a partnership (Limited Liability Partnership, General Partnership, etc.), engage in any of the specified Relevant Activities in the UAE, you are required to submit a notification:
- Banking Companies
- Insurance Companies
- Investment Fund Management Companies
- Lease-Finance Companies
- Headquarter Companies
- Shipping Companies
- Holding Company Companies
- Intellectual Property Companies
- Distribution and Service Centre Companies
A licensee is a business located in the United Arab Emirates that engages in one or more of the activities above within the relevant Financial Year. An entity is called an Exempted Licensee if it participates in one or more of the activities above but is exempt from certain obligations under the Economic Substance Regulations.
A Licensee and an Exempted Licensee must send a Notification.
For more details and an explanation of the aforementioned Relevant Activities, please refer to the Relevant Activities Guide found in Schedule 1 of Ministerial Decision 100 of 2020, published by the Ministry of Finance.
Some key points to be considered for ESR notification in the UAE
Some of the additional points that must be considered about the ESR notifications in the UAE are as follows-
- Regardless of whether the Relevant Activity was carried out for the entire Financial Year, the business is required to record all Relevant Activities carried out during the Financial Year.
- Regardless of whether a licensee is a part of a consolidated group for accounting or VAT purposes, each Licensee must file a notification individually.
- Regardless of whether the head office engages in a Relevant Activity, the parent business or UAE head office must submit a single, consolidated notification containing information about all of its UAE branches that perform a Relevant Activity.
The aforementioned points provide clarity on ESR eligibility and the individuals or entities obligated to file the ESR notification. In case of any lingering uncertainty, it is advisable to seek guidance from experts well-versed in Economic Substance Regulations.
When is the last day to submit an ESR notification in the UAE.
The last day to submit an ESR notification is within six months following the conclusion of the Licensee’s fiscal year; the Notification must be completed.
As an illustration:
- The deadline for the end of the financial year is 31st March
- The first financial year ending 31st March is 30th June
- For the financial year ending 30th December is 31st March
- And lastly for the financial year ending 31st December is 30th June
How is the Notification to be submitted?
The Ministry of Finance ESR portal is the required electronic submission location for the Notification.
How should the ESR Notification be submitted?
In Dubai, there are two main methods for submitting your ESR Notification:
- Electronically: The Ministry of Finance ESR Portal is the recommended route. This web-based platform guarantees safe submission and has an easy-to-use interface. Register on the portal and adhere to the instructions to finish and submit your Notification.
- Paper Form: Paper form submission may be allowed under unique situations. However, because there could be mistakes and delays, this is the least desirable alternative. If this approach would work for you, speak with your registered agent or tax counsellor.
What happens if the Licensee is going through a liquidation?
The entity or its liquidators must make sure that all requirements under the Economic Substance Regulations are met for the time leading up to liquidation, including the filing of an Economic Substance Report (where applicable) and Notification if the Licensee engages in a Relevant Activity in the year of liquidation.
What occurs if a Licensee is expected to submit a Notification but fails to do so?
AED 20,000 will be assessed as a penalty for failing to file a notification by the deadline.
What happens if the Notification’s contents need to be more accurate?
Inaccurate or fraudulent information submitted in the Notification could result in an AED 50,000 fine. Suppose a Licensee knowingly provides false or inaccurate information or falsely claims an exemption from the Economic Substance Regulations. In that case, the Licensee may be considered to have failed the Economic Substance Test for the applicable Reportable Period.
What details must be included in the ESR Notification?
You must fill out the ESR Notification form with comprehensive details about your business and its Relevant Activities, such as:
The company details include the name, legal form, registration number, registered address, and authorised representative.
Relevant Activity information includes the type of activity, the location, the number of employees involved, and the money made from the activity.
Proof of economic substance: Explain how your business complies with the Relevant Activity’s ESR requirements. This contains information about your primary sources of revenue, the costs you incur, the people you hire for the job, and your physical presence in Dubai.
Economic Substance Regulations in the UAE can help you file your ESR notifications easily and on time.
Dubai-based enterprises that engage in relevant activities must submit an accurate and timely ESR notification. You may easily manage the process and guarantee compliance with the ESR laws by being aware of the requirements, according to the methods described above, and getting professional support when necessary. Remember that the ESR is about more than just checking boxes; it’s about proving that you are committed to natural economic substance and helping create a sustainable business climate in Dubai. It is advisable to seek the help of experts to file your Economic Substance Regulations in the UAE.