Economic Substance Reassessment in UAE
Jay Krishnan, Partner
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. It is mandatory to file the ES report within 12 months following the end of the licensee’s financial year.
The UAE Ministry of Finance (MoF) has published templates for filing notifications and reports. 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
Below listed are certain key observations about the report;
- Licensees get the opportunity to explain why CIGAs have not been performed in the UAE (if applicable).
- The same CIGAs are currently listed in the template for all activities, but it is expected to be rectified later on.
- Licensees are required to provide the accounting profit/(loss), along with the ‘relevant income’ earned from the relevant activities.
- It is mandatory to attach financial statements along with the report, but there is no clarity on whether these statements need to be audited or not.
- Licensees must determine their primary/ main regulatory authority, which becomes difficult when the licensee is carrying on multiple relevant activities which are governed by different regulatory authorities
- Detailed information must be provided if both the outsourcing providers are involved.
- Details regarding the parent company, the ultimate parent company, and the ultimate beneficial owners of the licensee must be provided.
- Differences in the information provided in the notification along with their reasons must be provided in the report.
- Licensees can also include any additional documentation and information to demonstrate substance if they want to.
The UAE introduced Economic Substance Regulations last year. The Regulations apply to financial years commencing on or from 1 January 2019. Entities that are within the scope of the Regulations are required to submit an annual Notification form to their Regulatory Authority, and complete and submit to the same Regulatory Authority an Economic Substance Report within 12 months from the end of their financial year Failure to comply with the Regulations can result in huge penalties.
There have been certain changes to the rules and regulations pertaining to economic substance regulations in the UAE. The UAE Cabinet of Ministers recently issued Cabinet Resolution No. 57 of 2020 that includes a set of amended regulations and all licensees in the UAE are required to re-assess their current ESR classifications and align them accordingly to the latest regulations. Click here to know more.
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