Economic Substance Regulations (ESR) – Filing & Reporting deadlines – Important Updates
May 16, 2021
THE DEADLINES ARE HERE. HAVE YOU FILED YOUR ESR PAPERS YET?
The UAE’s Economic Substance Regulations (ESR) requires the activity of a business as stated in the business license to match its financial statement, with that ‘Relevant Activity’ determined in ‘substance’ rather than in form alone. Businesses must file their ESR compliance for each Financial Year, ensuring the filings are correct on both substance and form.
The ESR is an important component of the UAE’s business regulations and sits within a cross border international tax framework. In fact, it is in response to OECD’s BEPS Action 5 initiative to counter harmful tax practices. The ESR was first issued in April 2019 and finally implemented after a series of amendments and guidance with the first batch of filings on 31 December 2020.
Filing deadlines have been recently extended. As per the latest guidelines issued by the Ministry of Finance, companies conducting Relevant Activities must submit a Notification within 6 months and an Economic Substance Report within 12 months of their Financial Year (FY) -end. Thus, companies with their FY ending December 2020 must comply with their ESR Notification filing on or before June 2021.
Failure to complete and submit the Notification may result in penalties as per ESR laws. The schedule of deadlines for various FY end dates are as follows:
| FINANCIAL YEAR END | NOTIFICATION FILING DEADLINE | ES REPORT FILING DEADLINE |
|---|---|---|
| 31 Dec 2019 | 31 Jan 2021 (extended deadline) | 31 Jan 2021 (extended deadline) |
| 31 Mar 2020 | 31 Jan 2021 (extended deadline) | 31 Mar 2021 |
| 30 Apr 2020 | 31 Jan 2021 (extended deadline) | 30 Apr 2021 |
| 31 May 2020 | 31 Jan 2021 (extended deadline) | 31 May 2021 |
| 30 Jun 2020 | 31 Jan 2021 (extended deadline) | 30 Jun 2021 |
| 31 Jul 2020 | 31 Jan 2021 | 31 Jul 2021 |
| 31 Aug 2020 | 28 Feb 2021 | 31 Aug 2021 |
| 30 Sep 2020 | 31 Mar 2021 | 30 Sep 2021 |
| 31 Oct 2020 | 30 Apr 2021 | 31 Oct 2021 |
| 30 Nov 2020 | 31 May 2021 | 30 Nov 2021 |
| 31 Dec 2020 | 30 Jun 2021 | 31 Dec 2021 |
| 31 Jan 2021 | 31 Jul 2021 | 31 Jan 2022 |
| 28 Feb 2021 | 31 Aug 2021 | 28 Feb 2022 |
| 31 Mar 2021 | 30 Sep 2021 | 31 Mar 2022 |
| 30 Apr 2021 | 31 Oct 2021 | 30 Apr 2022 |
| 31 May 2021 | 20 Nov 2021 | 31 May 2022 |
| 30 Jun 2021 | 31 Dec 2021 | 31 Jul 2022 |
Businesses should file as soon as possible and not wait until the end of the extended deadline. It is important that the filing be done not only within time but also accurately. Given the international nature of ESR, and the possibility of UAE authorities having to convey the company’s UAE Substance test failure to tax authorities overseas, the penalties are not limited inside the UAE alone but could result in the company being red-marked overseas. Hence, the process could be time consuming as well as complex.
So, whether your deadline is approaching, or you need to learn more about ESR, get in touch with us. Help is only one contact away.
At MBG, our experienced and knowledgeable team of experts guide companies in the UAE through the entire process; not only with starting and completing the filing and submission process well within time but also with comprehensive and holistic advice guidance on all related aspects such as ESR impact assessment, what constitutes ‘Relevant Activity’, the appropriate level of “economic substance”, exempted activities and licenses, and other crucial areas.
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