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Significance of ESR compliance for businesses in UAE

MEDIA / Articles / Significance of ESR compliance for businesses in UAE
The ESR regulation requires the UAE - based businesses, whether onshore or offshore to carry out the self-assessment and se for themselves whether the regulations are applicable to such businesses or not. If the businesses conducting self-assessment are found carrying out the activities falling within the ambit of the Relevant Activities defined under the ESR are under obligation to satisfy the mandatory Economic Substance Test and do the necessary reporting.  

UAE based business (Licensees) need to do take the following measures to comply with ESR:
  1. Satisfy Economic Substance Test:
  1. Conducting Core Income- Generating Activity (“CIGA”) in the UAE.
  2. Relevant Core Income- Generating Activity managed and directed in the UAE.
  3. Adequate work force physically present in the UAE and carrying out the Core Income- Generating Activity in the UAE or outsourcing the Core Income Generating Activity to third party service providers, and their activities, employees, expenditure and premises located in UAE.
  4. Adequate physical assets in the UAE.
  5. Monitoring and controlling the Core Income- Generating Activity in case it is outsourced.
  1. Mandatory Reporting:
Businesses must notify to the concerned authorities that which of the relevant activities it had carried out during the last financial year by filing the ESR Notification.
Reporting businesses must also disclose in the ESR Notification whether it earned any income by carrying out the Core Income- Generating Activity or not. In case of affirmative, the businesses must to do the advanced reporting by filing the ESR Report.

Consequences of Non-Compliance with Economic Substance Regulation:
Failure or omission (non-submission, submission of inaccurate and incomplete information) to comply with the requirements of the ESR by the businesses falling under the scope of the regulation may be subject to monetary penalty of AED 10,000/- to 50,000/- during the first financial year. However, in case of repeated non-compliance, the amount of monetary higher amount and also result in the suspension, revocation or denial to renew the business license.
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