The Government of UAE has recently amended previously issued resolution on Economic Substance regulations and has confirmed that the amendments will apply retrospectively from 1st of January 2019. We have listed below some of the key changes that were introduced.
1. All entities are required to reassess whether they are in scope of ESR. If they are, they need to resubmit the notification on the Ministry of Finance portal once it is activated.
2. Revised ES Regulations are applicable for all juridical persons as well as unincorporated partnerships except for natural persons, sole proprietorships, Trusts and Foundations.
3. Exemptions from filing an Economic Substance Report is available for below listed licensees. However, Notification will still have to be filed.
- An Investment fund and its underlying SPVs/ Investment holding entities
- A wholly UAE resident-owned business that is not part of a multinational group and that only carries on business in the UAE
- Entities that are tax resident outside of the UAE
- UAE branch of a foreign company whose relevant income is subject to tax outside of UAE
4. UAE Branches of UAE entity is treated as single entity and compliance made by the parent company is sufficient. However, Consolidation is not required for a foreign branch of UAE entity as long as relevant income from foreign branch is taxed in foreign jurisdiction.
5. In order to claim exemption based on foreign tax residency for corporate tax purpose, submission of following documents will be required.
- Tax Residency certificate
- Corporate Income Tax (CIT) Assessments/ CIT Demands
- Evidence of Payment of CIT
- Any other documents from tax authorities
6. Scope of Distribution and Service Centre Business is revised as follows:
- As long as goods are purchased from foreign connected parties, local sales as well as high sea sales are considered as relevant activities.
- Services provided within UAE on behalf of foreign connected parties are also in-scope of ESR.
7. Connected party" has been defined as entity that is part of the same Group. " Group" has been further defined as two or more entities related through ownership or control such that they are required to prepare consolidated financial statements for financial reporting purposes under the accounting standards applicable thereto.
8. If the Licensee conducted relevant activity for a particular fiscal year, it has to comply with ESR till the date of liquidation or winding up. This means, even if a company may be liquidated now but if it was carrying out any relevant activities in 2019 or in 2020, ESR notification and reporting will be required.
9. Federal Tax Authority has been appointed as National assessing authority and they are responsible to undertake assessment as well as impose administrative penalties to licensees.
10. Revised penalty schedule are as follows:
- Non-submission of Notification: AED 20K
- Non-submission of Report or Failure to meet Economic Substance Test: AED 50K
- Not meeting EST on the consecutive financial period: AED 400K
This is not an exhaustive list of changes which were introduced. For further details, kindly get in touch with Sovereign team at firstname.lastname@example.org
- Our team can reassess the ESR applicability for your company and also assist with the re-submission of ESR notification.
- We can offer guidance for ESR compliance and offer recommendation in order to meet Economic Substance Test.
- We can assist with the filing of Economic Substance Returns to the regulatory authority.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.