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UAE Cabinet of Ministers amended the ESR
Law and guidance via Cabinet Resolution no 57 dated 10 August 2020 and
Resolution no 100 of 2020 on 19 August 2020, respectively, collectively called
Amended Regulation which repealed the Original Regulation.
Required licensee must Resubmit the ESR
Notification on the MOF portal, date to be announced.
Critical Changes Summary:
o Licensee is defined as “a Juridical
Person (incorporated inside or outside the state)â€.
o An Unincorporated Partnership.
o Registered in the state or free zone and
carrying on a Relevant Activity.
Natural person, sole proprietors, trust,
and foundations are no longer in the scope of ESR Regulations, therefore no longer
required to file notification and meeting ESR Tests.
The amended ESR Regulations introduced
following exemptions:
o A Licensee that is Tax Resident outside
UAE.
o Investment Funds and Its SPVs or
Investment Holding Entities.
o Wholly owned by UAE residents Licensee,
and which is carrying on business only in UAE and is not part of a
multinational group.
o A Branch of a foreign entity that is
subject to tax outside UAE for all of its Relevant Income.
The above entities need to a) file
notification and b) provide sufficient evidence substantiate their status
Entities that are directly or indirectly owned at least 51% by the UAE
Government are no longer exempt from ESR, such entities maybe needed to comply
ESR amended regulations.
o A connected person is the entity that is a
part of the same group as the licensee or exempt licensee.
o A group is defined as two or more related
through ownership or control such that those must prepare Consolidated
Financial Reporting under the accounting standards.
Extremely important step under amended
regulation is the appointment of FTA as ESR assessing and enforcing authority.
This will bring uniformity of requirements and reporting in UAE.
MNE Group means two or more entities the
tax resident of which is in different jurisdictions or An entity that is
resident for tax purposes in one jurisdiction and is subject to tax, with
respect to activities carried out through branch/ permanent establishment in
another jurisdiction.
It was not defined in the original ESR
regulation, now defined as “all income of an entity from a relevant activity
that is recorded in books under applicable accounting standards whether earned
I UAE or outside irrespective whether the entity derived a profit or loss from
that activity.
Branches are no more considered as separate
entities, the HO or parent companies registered in UAE must report the ESR as
single licensee including all its branches.
UAE Branches of foreign entities will be
out of scope if the relevant income of those branches is taxed in foreign
jurisdictions.
Foreign branches of UAE businesses are not
in the scope of ESR if the relevance of those branches are taxed in foreign
jurisdictions.
UAE Amended ESR Regulations necessitates the inclusion of Financial Statements in the ESR Reporting. The important point is
the financial statements of each licensee to be reported, not only as a group.
A Licensee is considered as engaged in
“Distribution Business†if,
o Purchase raw material or finished good
from a foreign group company, and
o Distributes those raw materials or
finished goods.
Importing and storing good in the UAE clause is
removed.
A Licensee is considered as engaged in
“Service Center Business†if provide Consulting, Administrative or other
services to a foreign group company. Services provided to “in connection with a
business outside the state†is no more required.
The High-Risk IP business conditions are
changes as follows:
o The Licensee did not create the
Intellectual Property Asset which it holds for the purpose of its business, and
o The Licensee acquired the IP assets from:
- A connected
person, or
- In
consideration of funding research and development by another person situation
in a foreign jurisdiction.
o The licensee licenses or sold the IP
asset to one or more of the group companies or earn separately identifiable
gross income, like royalties/license fee, from foreign group companies in respect
of the use or exploitation of the IP asset.
The (b) condition of the old regulation
"the Licensee does not carry out research and development, or branding,
marketing and distribution as part of its State Core Income-Generating
Activity" is removed.
o Renting assets, equipment, or any other
good to another person for consideration is now deleted from the scope of
Lease-Finance Business (as per FAQs).
o Reporting under Lease-Finance Business is
not required if an entity is engaged under Headquarters Business, earlier was
required under both.
o Cash pool arrangements are specifically
considered as Lease-Finance Business
Real estate assets owned by the Licensee
that is solely used for purposes of Holding Company Business will not prevent
such Licensee from being considered as carrying on a Holding Company Business.
Under “Directed & Managedâ€, the requirement of holding at last one meeting in UAE is now removed.
The Notification must be submitted within
six months from the end of the Financial Year of the Licensee or Exempted Licensee
|
# |
Point Particular |
As per old Regulations |
As per Amended Regulations |
|
1 |
Failure to submit Notification |
AED 10,000 to AED 50,000 |
A fixed penalty of AED 20,000 |
|
2 |
Failure to submit Economic Substance
Report or failure to meet the Economic Substance Test |
- AED 10,000 to AED 50,000 - AED 50,000 to AED 300,000 for the
subsequent Financial Year and it may also impose suspension, revocation, or
non-renewal of the License |
- AED 50,000 for the first Financial Year - AED 400,000 for the subsequent
Financial Year and it may also impose suspension, revocation, or nonrenewal
of the License |
|
3 |
Penalty for providing inaccurate
information |
AED 10,000 to AED 50,000 |
AED 50,000 |
This article is intended for information purpose only, it is not a legal
opinion or advice.
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