Economic Substance Regulations (ESR UAE) Alert!
Amendments to/Cancellation of UAE Economic Substance Regulations (ESR UAE)
Published in the Official Gazette on 16 September 2024, Cabinet Decision No. 98 of 2024 amends Cabinet Resolution No. 57 of 2020 concerning Economic Substance Requirements, by adding Article (2) B to limit its overall application to fiscal years between 1 January 2019 and 31 December 2022.
The removal of the need to comply with the economic substance regulations is welcomed given that the UAE corporate tax law places similar requirements.
What does this mean for your business?
- If you were previously required to comply with the Economic Substance Regulations, you are no longer required to satisfy these requirements for fiscal years that ended after 31 December 2022.
- All fines imposed under the provisions of Cabinet Decision No. 57 for fiscal years that ended after 31 December 2022, will be cancelled. Any fines paid in relation to a financial year that ended after 31 December 2022 will be refunded.
The recent Cabinet Decision No. 98 of 2024 introduced substantial changes to the ESR regime in the UAE:
- ESR notifications and reports are no longer required for financial years commencing after 31 December 2022.
- Penalties cannot be imposed on any entities that did not observe ESR filing deadlines relating to financial years starting after 31 December 2022.
- Any penalties paid by licensees or exempted licensees relating to financial years starting after 31 December 2022 are to be refunded. The mechanism of the refund is yet to be confirmed and will be specified by the Minister of Finance through separate legislation in the future.
This development is a welcome and positive news for UAE businesses, as it removes a potentially burdensome compliance obligation. It should be noted, however, that the requirement to demonstrate economic substance has not disappeared entirely, given that this continues to be one of the conditions imposed by the corporate tax regulations, particularly for businesses wishing to benefit from a special tax regime.
Key changes include:
- Extending the applicability of the ESR to financial years starting on or after 1 January 2019 through to 31 December 2022.
- Waiving administrative penalties imposed on businesses and entities that were previously exempted from ESR obligations for the period ending on 31 December 2022.
- Waiving any penalties imposed post-31 December 2022, upon fulfilment of all relevant national compliance obligations.
Key Takeaways:
- Scope of Cabinet Resolution No. 57 of 2020 concerning the Determination of Economic Substance Requirements shall remain applicable only for fiscal years commencing from 1 January 2019 to the fiscal year ending on 31 December 2022.
- The ESR regime in the UAE has been withdrawn for financial years starting after 31 December 2022.
- Entities should maintain proper documentation regarding ESR submissions for the effective ESR period – financial years starting on or after 1 January 2019 till financial year ending on or before 31 December 2022, as the Federal Tax Authority may conduct ESR audits.
- Administrative fines imposed post this effective period shall be ineffective, and the authority shall refund the fines paid by the licensees for the fiscal year ending after 31 December 2022. All grievances filed for fiscal years ending after 31 December 2022 shall be ended.
- If your entity, being a licensee, has filed any appeal requests or paid any fines pertaining to fiscal years ending after 31 December 2022, such entities shall be eligible for refunds towards fines paid, and their grievances filed with the National Assessing Authority shall be cancelled.
To discuss any of the changes to Economic Substance Regulations (ESR), or any tax matters more generally, please contact one of our team members at:
Email: info@bensauditors.com
Call : +971 4 44 33 612
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