ESR Penalties, Appeal and Audit in UAE

ESR Penalties in UAE

National Assessing Authority (Federal Tax Authority -FTA) determines that a Licensee or an Exempted Licensee has failed to comply with applicable provisions of the ESR Regulations, the FTA may impose various administrative penalties.

A. Failure to submit a Notification: AED 20000/-

B. Failure to submit an Economic Substance Report:

• Penalty of AED 50000/-; and
• Deemed failure to demonstrate economic substance in the UAE

C. Failure to provide accurate or complete information:

• Penalty of AED 50000/-; and
• Deemed failure to demonstrate economic substance in the UAE.

D. Failure to demonstrate sufficient Economic substance in the UAE for the relevant Financial Year:

First failure

• Penalty of AED 50000/-; and
• Information exchange with foreign competent authority of:
  1. Parent company,
  2. Ultimate parent company, and
  3. Ultimate beneficial owner

Second consecutive instance of failure:

• Information exchange with foreign competent authority of:
  • Parent company,
  • Ultimate parent company, and
  • Ultimate beneficial owner; and
• Penalty of AED 400,000/-; and
• Trade / commercial license could be suspended, withdrawn, or not renewed

ESR Appeals in UAE

A Licensee may appeal a decision of the Federal Tax Authority (National Assessing Authority) on the following grounds:

• It did not commit a violation.
• The penalty imposed is not proportionate to the violation.
• The administrative penalty imposed exceeds the limit prescribed.

There is, in general, a six (6) year limitation period which applies to administrative penalties.

ESR Audit in UAE

FTA can issue audit for ESR and the time period and requirements is not specified and it will vary from client to client. Hence, it can not be determined but we at HLB HAMT can assist in the audit process to submit the information sought by the Ministry based on the experience we have.