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ECONOMIC SUBSTANCE REGULATIONS (ESR)

Forty-Nine: ESR registration deadline

The UAE’s Economic Substance Regulation (ESR) requires the activity of a business as stated in the business license to match its financial statement, with that ‘Relevant Activity’ determined in ‘substance’ rather than in form alone. Businesses must file their ESR compliance for each Financial Year, ensuring the filings are correct on both substance and form.

The ESR is an important component of the UAE’s business regulations and sits within a cross border international tax framework, in response to OECD’s BEPS initiative to counter harmful tax practices. The ESR was first issued in April 2019 and finally implemented after a series of amendments and guidance with the first batch of filings on 31 December 2020.

As per the latest guidelines issued by the Ministry of Finance, companies conducting Relevant Activities must submit a Notification within 6 months and an Economic Substance Report within 12 months of their Financial Year (FY) -end.

Failure to complete and submit the Notification may result in penalties as per ESR laws.

Businesses should file as soon as possible and not wait until the deadline. It is important that the filing be done not only within time but also accurately. Given the international nature of ESR, and the possibility of UAE authorities having to convey the company’s UAE substance test failure to tax authorities overseas, the penalties are not limited inside the UAE alone but could result in the company being red marked overseas. Hence, the process could be time consuming as well as complex.

How can Turnkey FO help you?

We are happy to assist you with our expertise by carrying out the high-level assessment and support in filing the ESR Notification and Report within the due dates.

You can reach out to us through WhatsApp to freely discuss your needs.

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