ESR Amendment – Reporting Requirements and Penalties

The United Arab Emirates is widely regarded as one of the prime locations for establishing and conducting business operations. With its progressive and growing economy, strategic location, access to diversified markets, strong cultural background, and favorable business environment, the UAE offers numerous advantages for entrepreneurs and businessmen.

However, with the increasing influx of people and businesses, there has been a corresponding rise in cases of fraud and non-compliance with regulations, which can negatively impact the country’s economy. To address this issue, the government of the UAE introduced the Economic Substance Regulations (ESR) on April 30, 2019.

Subsequently, on April 10, 2020, the UAE government amended the ESR through Cabinet Minister Resolution 57 of 2020, bringing about significant changes in reporting requirements and penalties. Some of the key amendments include:

Reporting Requirements and Economic Substance Test:

• Previously, businesses were not required to submit financial statements for filing the Economic Substance Report. However, under the amended resolution, providing financial statements has become mandatory.
• The requirement of conducting a minimum of one economic substance test annually has been removed, with the decision now dependent on factors such as the nature of the business activities and volume.

Changes in Penalties:

Failure to perform the Economic Substance Test or submit the Economic Substance Report previously incurred penalties ranging from AED 10,000 to AED 300,000. Under the amended resolution, the penalties have been increased to AED 50,000 for the first year and AED 400,000 from the second year onwards.

Failure to submit the ESR notification previously attracted fines ranging from AED 10,000 to AED 50,000. The amended resolution imposes a fixed fine of AED 20,000.

The penalty for presenting inaccurate records has also been revised, with a fixed fine of AED 50,000 under the amendment. These amendments aim to strengthen compliance with ESR requirements and ensure greater transparency and accountability among businesses operating in the UAE. For businesses seeking guidance on navigating these regulatory changes, Elysian Consulting Group offers expert consultations to provide accurate and essential information for business growth and compliance. Contact us for further assistance; we are here to help.