What is to be Notified in the Economic Substance Notification Form?
Economic Substance Notification (ESR Notification) Form
Economic Substance Notification (ESR Notification) form has been published by the Ministry of Economy, the Regulatory Authority for the mainland Business in the United Arab Emirate (UAE). All the licensees licensed with MoE requires to file the Economic Substance Notification (ESR Notification) with Ministry on or before the due date 30th June 2020. This Economic Substance Notification (ESR Notification) is the initial information to be shared with the Authority as part of compliance of Economic Substance Regulations in UAE (ESR UAE).
Which Licensees are governed by Economic Substance Regulations in UAE (ESR UAE)?
Licensee conducting the Relevant Activities are governed by Economic Substance Regulations in UAE (ESR UAE). Both the Licensed activities (activities mentioned in Commercial/ Trade License or Memorandum of Association or Certificate of Incorporation or any permit/document issued by licensing authority), as well as Actual activities, are to be assessed for applicability of Economic Substance Regulations in UAE (ESR UAE).
What is Economic Substance Regulations in UAE (ESR UAE)?
Economic Substance Regulations vide Cabinet of Ministers Resolution No 31 of 2019 is effective in the UAE from the year 2019. Economic Substance Regulations in UAE (ESR UAE) is applicable to all companies registered in onshore & Free Zone (including Financial Free Zone) carrying out Relevant Activity. The businesses in the UAE will now have to prove their Economic and Substantial existence in the UAE and have to apply the substance over form approach. As per Article 8 of this regulation the Licensees need to file Economic Substance Notification (ESR Notification) and ESR Return with its Regulatory Authority within the declared due dates.
What are the Relevant Activities under Economic Substance Regulations in UAE (ESR UAE) for the Regulatory Authority MoE?
Ministry of Economy will be the Regulatory Authority in the case of licensees conducting following Relevant Activities in the mainland:
- Holding Company
- Headquartered Business
- Shipping Business
- Intellectual Property Business
- Distribution & Service Centre Business
So, the entities must notify the Authority whether or not they carry out any of the above mentioned Relevant Activity or not. Further, it is to be noted that if the Licensee is carrying out the activities which is not mentioned in the license issued by MoE but in substance falls under any of the above Relevant Activities, the licensee will have to notify the Authority that it is carrying out the Relevant Activity.
What are the 5 things to be notified Economic Substance Notification (ESR Notification) form?
The file Economic Substance Notification (ESR Notification) form as published by the Ministry of Economy is divided into 5 parts and requires a licensee to provide the following details:
- Licensee’s Details;
- Reportable Period;
- Relevant Activities;
- Additional Information; and
What are the penalties in cases of Non-compliance?
If any licensee fails to comply with the requirement of filing the file Economic Substance Notification (ESR Notification), then such Licensee may have to face Penal Consequences as provided in Article 11 of the Cabinet Resolution No. 31 of 2019. The penalty ranges from AED 10,000 to AED 50,000 in the first year of its Non-Compliance and for Subsequent non-compliance, it ranges from AED 50,000 to AED 300,000.
Further, failure by an Entity to comply with Regulation can also result in Spontaneous Exchange of Information with Foreign Competent Authority and potential suspension, Revocation or non-renewal of its registration.
Important Points in the file Economic Substance Notification (ESR Notification) issued by Ministry of Economy
- The first due date to file the Notification is 30th June 2020
- In part 3 of the form, Relevant Activities requires to select Yes/ No on whether Licensee is conducting Relevant Activity or not. Which means all business has to file the file Economic Substance Notification (ESR Notification) and select the appropriate option in Question 1 in Part 3.
- Question 2 in Part 3 covers only 5 Relevant Activities namely Headquartered Business, Shipping Business, Holding Company Business, Intellectual Property Business, Distribution & Service Centre Business. The remaining 4 activities- Investment Fund Management Business, Lease-finance Business, Banking Business & insurance Business are not covered in the Notification. The Regulatory Authority for these activities is either Securities and Commodity Authority or UAE Central Bank or Insurance Authority. There can be possibilities that the UAE Mainland company licensed from MoE may conduct a Relevant Activity which is not listed in the Notification Form. eg: Lease Finance Activity. In such a scenario, the present Notification Form is not sufficient. We are awaiting clarification or guidance from the Ministry of Economy in this regard.
- Also, Licensee has to provide the information in detail in Yes/No as to whether they earn income from Selected Relevant Activity during the Reportable period or not. Which means even if the licensee has not earned any income but is licensed for Relevant Activity has to notify the same to the MoE.
What can Emirates Chartered Accountants Group Support You?
We Emirates Chartered Accountants Group have a specialized team on the Subject to support and guide you on the Compliance with Economic Substance Regulations in UAE (ESR UAE) with the following roadmap:
Phase I: To study your Business Activities in detail and assess the applicability of Economic Substance Regulation on your activities. Also, to provide support and guidance on filing a notification with the Relevant Authority.
Phase II: To provide the guidance and support for compliance with the provisions of the Regulation, if your activity is falling under the regulation. To conduct Impact Study and Gap Analysis in order to assess whether the Business meets the Compliance test and to provide the recommendations.
Phase III: Reporting with Relevant Authority on or before the Due Date.
We are Quality driven professionals and its always our pleasure to serve & support you.
For any enquiry on the Subject you can reach out:
CA Dhara Yagnik, M.Com, ACA CA Manu Palerichal, FCA, CMA