What is all about ESR?
As part of the UAE’s commitment being a member of the OECD Inclusive Framework, in response to an assessment of the UAE’s tax framework by the European Union (“EU”) Code of Conduct Group on Business Taxation, the UAE introduced a Regulation on the Economic Substance(ESR) in April 2019 and replaced them in August 2020.
What are the Relevant Activities?
- Banking Business
- Insurance Business
- Investment Fund management Business
- Lease – Finance Business
- Headquarters Business
- Shipping Business
- Holding Company Business
- Intellectual property Business (“IP”)
- Distribution and Service Centre Business
Once a UAE company has been identified as undertaking relevant activities, the ESR requires the company to satisfy the economic substance test which comprises three elements:
1). It is directed and managed in the UAE in relation to that activity
2). It conducts Core Income-Generating Activities (CIGA) in the UAE
3). It meets the adequate requirements with regard to the level of relevant activity carried on in the UAE.
What is expected if ESR is applicable to your business?
If you are carrying out the relevant activities and you are earning income out of it, you need to;
- Submit ESR notification
- Submit ESR report and
- Make sure to manage the business in the way it is needed as per the law and maintain the adequate documentation
What are the due dates for submission of the ESR notification and ESR Report?
ESR Notification shall be submitted within 6 months from the end of the financial year and ESR Report should be submitted within 12 months from the end of the financial year with the Ministry of economy.
Following table demonstrates the relevant dates based on the financial year end date:
| Financial year end date | ESR Notification submission last date | ESR Report submission last date |
| 30 June 2022 | 31 December 2022 | 30 June 2023 |
| 30 September 2021 | 31 March 2022 | 30 September 2022 |
| 31 December 2021 | 30 June 2022 | 31 December 2022 |
| 31 March 2022 | 30 September 2022 | 31 March 2023 |
What are the penalties for not complying with ESR?
- Failure to submit ESR Notification in time: AED 20,000
- Failure to submit ESR Report in time: AED 50,000
- Failure to meet the Economic Substantive Test: AED 50,000
- Failure to provide accurate or complete information: Penalty of AED10,000 to AED 50,000; and
How can Spectrum Auditing facilitate you in complying with ESR?
- Spectrum can assist you in assessing whether ESR is applicable to your business or not
- We can assist you in submitting the ESR notification
- We can assist you in bringing the necessary changes in organising your business to be able to comply with the requirements of ESR
- We can assist you in submitting the ESR return
- We can assist you in submitting an appeal against the penalties that are already levied in relation to ESR compliance
What to do now?
Let us know if you want us to help in complying with the above mentioned ESR requirements and avoid the risk of getting penalties levied on your business. Book an appointment today to know further.
Spectrum is your one stop resource to get all your queries pertaining to Economic Substance Regulations get addressed. You can call +971 4 2699 329 (or) WhatsApp @ +971 50 9866 466 (or) email Spectrum at [email protected] to know more regarding your ESR assessment.
contact us