Economic Substance Regulation as per new amendments
Are you aware that Economic Substance Regulations (ESR) issued earlier in 2019 got amended and as a consequence, the ESR Notification submitted in June stands annulled?
The UAE Ministry of Finance has revised certain rules and as per new amendments, ESR related compliances, filing and penalties are also changed.
- New regulations apply to financial years commencing on or from 1 January 2019. UAE businesses, including the ones that had already filed ESR notification, are required to file or re-file ESR notification through MoF’s dedicated portal.
- Licensees are required to submit their Economic Substance Regulation notifications within six months from the end of the financial year. Licensees that already submitted a Notification directly to their Regulatory Authorities are required to re-submit this Notification on the portal once it is live in first week of December.
- An extension is granted until 31 December 2020 and Licensees and/or Exempted Licensees that fail to submit their Notification along with the required supporting documents by 31 December 2020 will be issued a penalty of AED 20,000 for failure to provide a Notification.
- Earlier only entities with 51% or more direct/indirect government ownership were exempted from ESR. But now, along with them, the following categories of licensees will be exempted from ESR;
- Investment funds
- UAE branches of foreign companies
- Licensees that are tax resident outside UAE
- UAE resident-owned businesses
- Any licensee the Minister of Finance decides to give exemption to
- According to the ES notification template, additional details must be provided for the following;
- All branches of a licensee carrying out relevant activities
- Confirm if the licensee meets the definition of ‘exempted licensee’ under the new ES Regulations
- Parent company, ultimate parent company, and ultimate beneficial owners of the licensee
- Attaching financial statements along with the report is mandatory, but there is no clarity on audit of such statements.
- Licensees are required to provide the accounting profit or loss, along with the income earned from the relevant activities.
- Licensees must determine their primary/ main regulatory authority.
- Details regarding the parent company, the ultimate parent company, and the ultimate beneficial owners of the licensee must be provided.
- Penalties as per revised regulations-
- AED 50,000 if the licensee fails to submit report or doesn’t meet the requirements of the tests in the first year and AED 400,000 if it happens in the second year also.
- AED 50,000 if the information given to RA or FTA is not correct/ accurate.
- AED 20,000 if notification is not submitted.
- License annulment for persisted non-compliance.
Set of amended regulations has prompted all licensees in the UAE to re-assess their current ESR classifications and align them accordingly to the latest regulations. Horizon Biz Consultancy assists clients to comply with ESR regulations and we will be happy to guide them on the new amendments too.
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