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How to file economic substance notification in the UAE

How to File Economic Substance Notification in the UAE

The business landscape of the UAE has undergone a major transformation with the introduction of regulations such as the Value Added Tax (VAT) and Anti Money Laundering (AML) regulations. Now, the compliance pressure on the UAE companies has increased with the introduction of the Economic Substance Regulations (ESR). The UAE introduced the ESR in a bid to comply with the global standards set by the OECD to prevent the illicit practices of tax avoidance or evasion. As per the new regulation, the mainland, free zone, and offshore companies in the UAE are required to demonstrate economic substance in the relevant activities they conduct within the UAE. In the first stage of ensuring ESR compliance, all the companies are required to submit the Economic Substance Notification to the regulatory authorities within the prescribed due date.

What is Economic Substance Regulations Notification in the UAE?

The free zones & offshore companies that hold a trade license in the UAE are required to notify the regulatory authorities whether or not they are carrying out the relevant activities within the UAE. The free zone companies are required to file and submit the Economic Substance Notification to the concerned free zone authorities while the mainland companies need to notify the Ministry of Economy if only if they carried relevant activity. The deadlines for submitting the Economic Substance Notification in the UAE have been announced by the free zone authorities and the Ministry of Economy. Since the Economic Substance Notification in the UAE is a mandatory requirement, the companies are advised to consult reputed ESR service firms in Dubai.

How to File Economic Substance Regulations (ESR) Notification in the UAE

The ESR regulations mandate that the mainland, free zone, and offshore companies are required to self assess their activities and file the Economic Substance notification annually to the relevant regulatory authority. While filing the Economic Substance notification in the UAE, the companies need to demonstrate that

  1. Whether or not they are carrying out the relevant activity in the UAE
  2. Whether the company’s earnings are subject to tax outside the UAE
  3. Date of the financial year-end

Also read: ESR Compliance: 5 Requirements for the UAE Economic Substance Test

What are the Relevant Activities as per Economic Substance Regulations in UAE?

The UAE companies including the mainland, free zone offshore, and the financial free zones come under the scope of the Economic Substance Regulations in UAE. The companies need to comply with Economic Substance Regulations in UAE if they generate earnings from any of the relevant activities given below:

  1. Banking Businesses
  2. Insurance Businesses
  3. Investment Fund Management Businesses
  4. Lease-Finance Businesses
  5. Headquarter Businesses
  6. Shipping Businesses
  7. Holding Company Businesses
  8. Intellectual Property Businesses
  9. Distribution and Service Centre Businesses

Further details: Read this

Is Filing a Single Economic Substance Notification for Multiple Companies Allowed in UAE?

The ESR regulations in the UAE don’t allow the filing of a single notification for multiple companies. It is common that companies become part of a consolidated group for the purpose of accounting in the UAE. However, when it comes to the Economic Substance Regulations in the UAE, the companies need to file the notification individually and the filing of notification on a consolidated basis is not valid. To clear the air on the process of filing Economic Substance Notification, the companies can consult reputed Chartered Accountant firms in Dubai that provide ESR services.

How to Determine the Reportable Period in Economic Substance Notification?

While filing the Economic Substance Regulations Notification in the UAE, the companies need to determine the reportable period. The reportable period as per the regulations is calculated as the financial period starting after 1 January 2019. The companies are required to mention the “start” and “end” dates of the relevant financial period.

The reportable period of a company whose financial year corresponds to the calendar year would be:

  •  Start date: 1 January 2019
  •  End date: 31 December 2019

If a company was incorporated on 1 July 2019 with a 31 March 2020 financial year-end, then it would have the following Reportable Period:

  •  Start date: 1 July 2019
  •  End date: 31 March 2020

UAE Economic Substance Regulations Notification Deadline for Free Zone Companies

The free zone authorities in the UAE have issued the due date for submitting the Economic Substance notification for the companies licensed by the authorities. The following are the cut-off dates announced by the major free zones including the financial free zones in the UAE:

Check the deadlines for Filing Economic Substance Notification in the UAE here

Economic Substance Regulations Notification Deadline for Mainland Companies

The Ministry of Economy (MoE) is regulatory for filing Economic Substance notifications for mainland companies that carried relevant activities in the UAE. As per the MoE guidelines, the mainland companies are required to file an Economic Substance notification before 30th June 2020.

Penalty for Failing File Economic Substance Notification Before Deadline

The mainland, free zone, and offshore companies need to file the economic substance regulations notification before the prescribed due date. Failing to notify the regulatory authorities before the deadline will attract a hefty penalty of AED 20,000. The companies will incur a penalty of AED 50,000 for furnishing incorrect information in the notification. To avoid such unforeseen incidents, the companies should consult the best ESR service firms in Dubai, UAE.

Economic Substance Regulations (ESR) Notification Requirement for Companies Under Liquidation

According to the regulations, the companies that have been dissolved, struck-off, or liquidated before the deadline for submission of the Economic Substance Notification, are not required to file the Economic Substance Regulations Notification in the UAE. However, the business entities that are currently undergoing the process of liquidation are required to file the notification.

Why Choose ESR Filing Services of Jitendra Chartered Accountants?

The UAE has been putting conscious efforts to ensure the economic regulations in the country are complying with global standards. In line with this, the UAE introduced the Economic Substance Regulations to combat the base erosion of taxes. According to the ESR, the companies in the UAE are:

Required to demonstrate they carry out adequate economic activities within the UAE. However, the companies are in the dark in evaluating the scope of the regulations. The companies need to ensure that the notification is filed before the due date. They also have to ensure that the notification doesn’t contain incorrect or incomplete information.  It is in this situation that the ESR filing services of Jitendra Chartered Accountants (JCA) become critical for the companies. The JCA can help the companies in,

  1. Assessing whether the firms in the UAE meet the scope of the Economic Substance Regulations
  2. Filing the annual UAE Economic Substance Regulations Notification
  3. Prepare and submit the UAE Economic Substance Regulations Report to the authority annually
  4. Provide recommendations on the Economic Substance test if the company is not satisfying the same.
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