IRHA ACCOUNTING AND TAX SERVICES IN UAE
ESR Services
ESR Filing
in UAE
Complete ESR Compliance Guidance for UAE Companies
ESR compliance in the UAE is a mandatory requirement for businesses to demonstrate that they are conducting genuine economic activities within the country. By adhering to ESR regulations, companies ensure they are not engaging in tax evasion or avoidance practices. Compliance proves that your core business activities are based in the UAE, generating revenue, and contributing to the local economy by paying the relevant taxes.
At IRHA Accounting & Auditing Services, we specialize in guiding businesses through the UAE’s ESR compliance process. Our experts assess your company’s need for ESR compliance and handle everything from the submission of ESR notifications to filing ESR returns. With our comprehensive, end-to-end services, you can rest assured that your business will remain fully compliant with ESR regulations.
Understanding UAE Economic Substance Regulations
The United Arab Emirates (UAE) has enacted comprehensive Economic Substance Regulations (ESR) to align with international initiatives aimed at mitigating harmful tax practices. These regulations, established under Cabinet of Ministers Resolution No. 31 of 2019, are effective for financial years beginning on or after January 1, 2019.
Key Highlights:
- OECD Membership: As a participant in the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS), the UAE is mandated to implement ESR to meet its international commitments.
- Scope of Applicability: The regulations extend to all entities licensed to conduct business in the UAE, including those in onshore, free zone, and offshore jurisdictions.
- Relevant Activities: The following activities trigger the application of ESR:
- Banking
- Insurance
- Investment Fund Management
- Lease-Finance
- Headquarters Operations
- Shipping
- Holding Company Activities
- Intellectual Property (IP)
- Distribution and Service Centre Operations
Compliance Obligations:
- Economic Substance Test: Entities must prove they have a substantive business presence in the UAE and are not merely vehicles for profit generation.
- Substance Requirements: Companies must satisfy certain criteria, which include maintaining sufficient human resources, operational facilities, and decision-making capabilities within the UAE.
- Reporting Requirements: Annual reports must be submitted to the relevant licensing authority, detailing the entity’s economic activities and adherence to the ESR.
Consequences of Non-Compliance:
- Non-compliance with ESR can lead to severe penalties, including fines and potential revocation of business licenses. It is crucial for businesses operating within the UAE to fully comprehend and comply with these regulations to avoid legal and financial risks.
Our UAE Economic Substance Regulations (ESR) Compliance Services
- At IRHA Accounting & Auditing Services, we understand the complexities surrounding Economic Substance Regulations (ESR) compliance in the UAE. Our comprehensive services are designed to assist businesses in meeting their ESR obligations while ensuring a smooth and efficient compliance process.
Our Services Include:
-
ESR Assessment and Advisory:
Evaluate your business activities to determine the applicability of ESR.
Provide tailored advice on meeting Economic Substance requirements based on your specific operations.
Documentation Support:
Assist in preparing the necessary documentation to demonstrate compliance, including evidence of economic substance, operational activities, and personnel adequacy.
Help maintain accurate records and evidence to support your compliance claims.
Economic Substance Test Preparation:
Guide you through the Economic Substance Test, ensuring that your business operations align with the required criteria.
Provide templates and checklists to streamline the preparation process.
Annual Reporting:
Assist in the preparation and submission of annual ESR notifications and reports to the relevant licensing authority.
Ensure that all required information is accurately captured and submitted within the deadlines.
Compliance Training:
Offer training sessions for your team to enhance understanding of ESR requirements and best practices.
Equip your staff with the knowledge needed to maintain ongoing compliance.
Audit Support:
Provide support during any potential audits related to ESR compliance.
Assist in addressing queries from authorities and ensuring that your documentation is audit-ready.
Ongoing Compliance Monitoring:
Establish processes to continuously monitor compliance with ESR requirements.
Keep you informed about any updates to regulations that may impact your business.
Understanding UAE Economic Substance Regulations
FAQs
ESR Filing FAQs
Economic Substance Regulations (ESR) are laws in the UAE that require certain businesses engaged in specified activities to demonstrate substantial economic presence in the country. The aim is to ensure that profits are not artificially shifted to low or no-tax jurisdictions.
Entities conducting one or more Relevant Activities defined under the ESR must file an annual notification and, if applicable, an ESR report. This includes both UAE mainland and free zone entities.
Relevant Activities include:
Relevant Activities
Banking
Insurance
Investment Fund Management
Lease-Finance
Shipping
Holding Company Business
Intellectual Property (IP)
Headquarters Business
Distribution and Service Centres
ESR Notification: A simple form that must be filed annually by all entities engaging in relevant activities, indicating whether they have earned income from such activities.
ESR Report: A detailed report required for entities earning income from relevant activities, demonstrating compliance with the Economic Substance Test.
ESR Notification: Must typically be submitted within 12 months from the end of the financial year.
ESR Report: Also due within 12 months from the end of the financial year if the entity has relevant activities.
The Economic Substance Test assesses whether an entity:
Conducts Core Income Generating Activities (CIGAs) in the UAE.
Has adequate employees, physical presence, and operational expenditures in the UAE.
Is directed and managed in the UAE.
Core Income Generating Activities (CIGAs)
are activities essential to generating income from relevant activities. Examples include managing investment portfolios for investment fund management or crew management for shipping businesses.
Non-compliance can result in significant penalties:
AED 20,000 for failing to submit the ESR notification.
AED 50,000 for failing to file the ESR report or meet substance requirements.
Penalties of AED 50,000 to AED 400,000 for false information or repeated non-compliance.
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