Last day for Businesses in UAE to comply and file notification for the ‘Economic Substance Regulations’
By 31st December 2020, which is today, all businesses in the UAE must comply with the ESR. The MoF, Ministry of Finance has put in immense effort to release the guidance notes, statutory documents and collection of notices to make sure that the right details are provided to the licensees.
Furthermore, they have stayed true to their commitment and have created the portal where licensees are supposed to submit the ESR reports. Below are some aspects that the licensees need to consider in order for a seamless filing.
Financial Statements – Standalone
In ESR reports, it is mandatory to submit all financial data from all important activities. The structures of most UAE businesses are centralized. If the audited financial reports are not accessible, then the licensees might have to evaluate whether to submit the management specialized accounts or not.
In the corporate structure of the UAE, there are many corporations that are made to hold investments and shares in others. The problem that licensees might face here is that such a holding company might not have employees. If this is the case, the personnel at the Headquarters can be stated under the category of ‘outsourcing provider’ to show the processes of the company in order to meet the standards of the adequacy assessment.
In a case with relevant activities, for example lease finance, there is a possibility that no outflow is sustained by the licensee. This might happen if the loan given to the group corporation is one that was issued before 2019.
If this is the case, then licensees do not need to undertake any activity or incur expenditure. When reporting no expenditure, licensees should have relevant documents to substantiate these facts.
Zero Board meetings
In ESR’s perspective, reporting facts of your board conferences is mandatory, except for those licenses involved in holding companies. However, as there is an absence of the secretarial regulation in the United Arab Emirates, there are some circumstances where no board conferences are arranged throughout the year.
Therefore, licensees should analyze whether the activities they have reported are in need of approval from the board or not. For example, if there is credit given out to a group corporation, it may not require the approval of the board.
Even so, such licensees need to maintain a backup documentation plan in order to support their economic substance.
The ESR report gives the licensee the option to give additional information as well. If the licensee is part of a huge, private corporation in the UAE, they can use the field data to inform specialists of their business structures.
There are some data fields in the report that may cause a doubt about what the response should be. Although the guidance records given out by the Ministry of Finance (MoF) are useful, in case of any doubt, you can seek clarification by emailing the Ministry of Finance. They usually respond within 36-24 hours.
With how the law is changing, challenges seen this year will smoothen out eventually, turning things easier for both the licensees and the authorities.
The final step of the ESR report is the Usain Bolt performance, which is agile and fast, but also backed with meticulous planning to prevent any flaws.