Dubai Aviation City Corp. (DACC), being among United Arab Emirates’ regulatory authorities, published a circular regarding the filing of notification for economic substance. All companies that are under its jurisdiction are to comply. As per the new circular which was recently issued, all licensees in DACC have to submit the economic substance notification on or prior to the 23rd of June 2020. Licensees are advised to submit prior to the deadline and seek the help of experts to ensure all information supplied to the authority are accurate.
Umm Al Quwain also published an extension to the due date for the filing of an economic substance notification, which is now moved to the 30th of June 2020. All licensees under UAQFTA are to provide notification as per the new circular issued. It is best not to expect any other extension to the due date for notification filing in order to avoid penalties for non-compliance.
ESR Deadlines set by other regulatory authorities in the UAE are as follows:
ESR Deadlines for notification filing to avoid penalties for non-compliance
|Ajman Free Zone||30th of June 2020|
|Fujairah Free Zone||15th of June 2020|
|RAK Economic Zone||30th of June 2020|
|RAK Int'l Corporate Center||30th of June 2020|
|Sharjah Int'l Airport Free Zone||30th of June 2020|
|Jebel Ali FZ Authority||30th of June 2020|
|Dubai Dept. of Economic Development||30th of June 2020|
If a licensee fails in complying with all the requirements for the filing of notification for economic substance in UAE to the relevant regulatory authority, such licensee will face penal consequences that are laid out in Cabinet Resolution (no 31) of 2019 Article 11 on Economic Substance Regulation (ESR).
Penalties for violations to the regulations range from Dhs10,000 to Dhs50,000 for non-compliance on the first year of implementation and Dhs50,000 to Dhs300,000 for subsequent violations. Failure to provide notification to relevant authorities can also lead to commercial or trade license withdrawn, suspended, or not renewed upon expiry. It is best to speak to regulatory experts in the UAE as soon as possible.
ESR in UAE: Law requirements
The Economic Substance Regulations in UAE requires relevant businesses to report to authorities on whether they are engaging in a relevant activity, which is listed below, during any point in a financial period starting from the 30th of April 2019.
There are different kinds of business activities that are considered as ‘Relevant Activities’ as per the new legislation and they are as follows:
- Insurance business
- Banking business
- Finance and leasing
- Fund management
- Shipping business
- Intellectual property business
- Holding business
- Headquarters business
Take note: even if your company doesn’t conduct any of the activities that were mentioned above or a resident of UAE, it is likely that you are still required in reporting certain information to regulatory authorities.
The transitional period for all existing business entities in complying with the new legislation on the economic substance has already passed. Compliance is now required for all businesses. Compliance with ESR will be measured according to financial periods of no more than twelve months each.
Lack of compliance or any violation of reporting requirements can result in penalties. It is also possible for violations to result in the removal of the business’ UAE registration status.
What are the entities that are affected by ESR in UAE?
Legal entities, including foreign limited partnerships and foreign companies, are all subject to the rules of economic substance in UAE if they meet certain criteria such as the following:
- Is a resident of the UAE
- Is a legal entity that is identified as being a subject to ESR
- Is a business that conducts a relevant activity during a financial period wherein it generates income from such relevant activity
All the licensees that are indirectly or directly owned by an Emirate government or Federal government are exempt from the new regulations on economic substance. A UAE government authority or body is also exempt.
Seek the help of ESR regulatory Experts
The United Arab Emirates provides businesses with various attractive incentives, which is why the entire region is considered as a magnet for entrepreneurs and investors, local and foreign alike. However, with the enactment of ESR in UAE, regulations have evolved.
At Farahat & Co, our knowledge, skill, and expertise of the rules and regulations of the UAE combined with the dedication of our regulatory experts, help ensure full, ongoing compliance for businesses that are affected by the new legislation. With our team’s guidance, you will be able to receive help in understanding and navigating the local market, as well as ensure compliance with ESR.
Call us today or send us a message if you wish to speak to our experts and acquire assistance, most especially on the submission of the notification related to an economic substance in UAE prior to the deadline.