ESR Assessment, Notification and Reporting
Overview
In accordance with Cabinet of Ministers Resolution No.31 of 2019, the Economic Substance Regulation (the “Regulations”) was implemented for certain businesses on April 30, 2019 as part of the UAE’s commitment to the OECD’s Inclusive Framework. On August 10, 2020, the Cabinet of Ministers Resolution No. (57) of 2020 amended the Regulations, and on August 19, 2020, the Ministerial Decision No. (100) of 2020 modified the Guidance.
All Licensees (registered with various licensing/regulating authorities in the UAE, such as DMCC, JAFZA, DAFZA, RAKEZ, DDA, Ajman Free Zone, etc.) who are found to be engaging in any of the “ESR Relevant Activity” listed below are subject to the regulations, which require them to submit an ESR notification and/or annual report through the Ministry of Finance (MOF) portal and to show that they have a sufficient level of economic substance in the UAE
All Onshore and Free Zone Companies in the UAE are required to comply with these Regulations annually and are therefore mandated to do so.
ESR Relevant Activities are
- Banking Business
- Insurance Business
- Investment Fund Management Business
- Shipping Business
- Lease-Finance Business
- Distribution & Service Center Business
- Headquarters Business
- Intellectual Property Business
- Holding Company Business
Each Licensee must take a content-over-form approach when deciding whether they are engaging in pertinent activities, which are not just limited to those listed in the Trade/Commercial License.
If your company is engaging in one of the aforementioned ESR-relevant activities, you must ensure that you comply with the ESR’s requirements for sufficient economic substance and reporting.
Every licence holder who engages in pertinent activities is required to submit an annual report and an ESR notification in the format and manner specified by the Authorities. Failure to notify the authorities will result in fines of AED 20,000, while failure to submit the ESR Annual Report by the deadline specified by the regulations would result in fines of AED 50,000. Penalties for persistent non-compliance might be as high as AED 400,000. When licensees fail to produce correct or complete information and establish sufficient economic substance in the UAE, additional sanctions such as suspension, withdrawal, and non-renewal of trade/company licences will also be applicable.
Virtue can help you manage economic substance standards and can advise you on any non-compliance concerns for your company
