Dubai: The bigger businesses in the UAE, particularly multinationals, have got themselves a major break when it comes to filing returns under the Economic Substance Rules.
As per a new directive from the authorities, they will no longer need to submit ESR focused filings now that the UAE got a full structure in place for its corporate tax requirements.
Companies engaged in nine ‘relevant activities’ were required to file for ESR under the UAE rules. These included banks and insurance firms, those in the shipping business, companies in lease finance and investment fund management.
Holding companies and local operations of multinationals too had to submit ESR.
Also, under the new directive, penalties imposed for ESR submission violations during 2023 will be refunded.
The CT rules cover the ‘economic substance’ test to be met by the taxable business and the minimum tax of 15% to be paid by global MNC.
What the Economic Substance Regulations mean is that such entities had to maintain an ‘adequate economic presence’ in the UAE.
Failure to file ESR notifications meant fines of Dh20,000 and for not submitting an ‘economic substance’ report was Dh50,000.
“With the advent of corporate tax, ESR has become redundant,” said Jeet Gianchandani, Managing Partner at the consultancy JCA.
“The CT rules cover the ‘economic substance’ test to be met by the taxable business and the minimum tax of 15% to be paid by global MNC.
“Since corporate tax provisions cover the economic substance test, it means from now on businesses having relevant income from these nine relevant activities will not be required to file notifications within 6 months of their financial year.
“And they don't have to prove ESR substance test such as having adequate office space and staff. Or having board of director members within the country.
“Nor do they have to provide the audit report at the year end.”
All such requirements now come within the scope of the corporate tax framework.
The UAE government has been very proactive on the concerns of the businesses - this is a welcome move to enhance confidence of business investors.
Waiver of 2023 ESR penalties
The announcement from the UAE authorities also come with a sweetener - 'waiver of penalties regarding economic substance would be a big relief for many entities', says Atik Munshi, Managing Partner at Finexpertiza UAE. "The announcement also states that fines imposed for financial year 2023 will be refunded.
"The UAE government has been very proactive on the concerns of the businesses - this is a welcome move to enhance confidence of business investors."
