UAE ESR Update: 3 steps review procedure - ESR legislation

February 20, 2020by Mohammed Rahali0
As seen in Gulf News
Have you set up your company in line with the new UAE economic substance rules? If you have not yet, do it now – because if the looming deadline passes, be prepared to pay a hefty fine!

Clarifications on ESR and first Guidance by MoF

  • The deadline for mandatory notification is anticipated to be the 30th of  June 2020.
  • The entities subject to the mandatory notification shall provide the following information to their Regulatory Authority:
  • Whether or not it is carrying out a Relevant Activity; and
  • In the affirmative; whether or not all or any part of the entity’s gross income in relation to the Relevant Activity is subject to tax outside the UAE; and
  • The date of the end of its Financial Year.
  • The entities that conduct a Relevant Activity and earn income from it, will be required to submit an ESR report demonstrating their level of substance
  • Evidencing how it is directed and managed in the UAE;
  • Identifying how the entity conducts its CIGA in the UAE;
  • Evidencing that the establishment has an adequate number of qualified full-time employees in the UAE, adequate premises in the UAE, and an adequate amount of operating expenditure.
  • Pure equity holding companies (holding companies which only derives their income from dividend and capital gains)will be subject to lighter economic substance requirements. Therefore SPVs/offshore companies (IBCs)used in this respect will only be required to confirm the type of asset/s held.
  • Any entity failing to comply with ESR may suffer fines from AED 100, 000 to AED 300, 000 and administrative penalties including suspension of its license or strike-off.

In brief

If you conduct business in the UAE or hold shares in a UAE entity, whether or not you operate a relevant activity, we strongly recommend that you audit your corporate structure to upgrade it by reaching an adequate level of economic corporate substance.

UAE entities need to implement their self-assessment to determine whether they are in the scope of the new Economic Substance legislation by undertaking in this respect a 3 steps review procedure:

  • Is the UAE entity a Relevant Entity?
  • Is it generating income from a Relevant Activity?
  • Is it meeting the Economic Substance Requirements? Is it able to pass the Economic Substance Test?

Penalties will be applied for non-compliance:

  • Administrative financial penalties (up to AED 50,000 for the first failure to meet the economic substance test, failure  to provide information or provision of inaccurate information to Regulatory Authority and up to AED 300,000 for the second time failure)- a statute of limitation of 1year or 6 years
  • exchange of information with the foreign tax authorities of the states where their parent company, ultimate parent company and UBO’s are resident
  • refusal to renew, suspension or revocation of entities ‘licenses

The authorized personnel of the Regulatory Authority may at any reasonable hour enter Business Premises to examine and take copies of any Business Document located there.

How can we assist you?

Wincore Advisory Group can assist you in this regulatory self-assessment to fulfill your compliance with legal responsibilities by:

  • to get a clear view of the new regulations and your entity’s categorization
  • reviewing internal corporate governance, Management information system and ESR criteria fulfillment
  • implementing the most cost & time effective compliant (implementing contractual and delegation arrangements) strategy to help you pass the economic substance test
  • providing you with corporate secretarial services and fulfilling your needs at the light of the new regulations

Outsourcing this function to the Wincore Advisory Group enables you to meet your obligations in the most efficient way and avoid wasting valuable time and energy in establishing an in-house process.


Mohammed Rahali

Managing Partner

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