ESR Penalty in UAE

CA Nabeela Bhanu 13 April 2022

PENALTIES UNDER ECONOMIC SUBSTANCE REGULATIONS

"IF YOU THINK COMPLIANCE IS EXPENSIVE – TRY NON-COMPLIANCE" – Paul McNulty

The United Arab Emirates has completed two years of ESR Filings (ESR Notification and ESR Report) and nearing the next Notification Filing date. At this point, it would be good to be informed about the non-compliances, errors, and penalties.

Before getting into the penalties, let us summarize the requirements and the timelines for ESR Filings.

REQUIREMENTS AND TIMELINES FOR THE ESR FILINGS

ESR Notification: To be filed by licensees and exempted licensees conducting Relevant Activity during the year. The ESR Notification must be filed within 6 months from the end of the Financial Year.
ESR Report: To be filed by licensees who are not exempted and are earning relevant income from the relevant activity during the financial year. ESR Report needs to be filed within 12 months from the end of the Financial Year.

REASONS FOR PENALTY IMPOSITION	PENALTY
1. Failure or delay to submit ESR Notification (Within the time mentioned above).	AED 20,000
2. Failure or delay to submit ESR Report and any relevant information or documents (Within the time mentioned above) or if the submitted Report does not meet the requirements of Economic Substance Regulations in the UAE.	AED 50,000. Also, Exchange of information with the foreign competent authority of 1) Parent company, 2) Ultimate parent company, and 3) Ultimate beneficial owner.
3. Repeatedly committed one of the two violations mentioned in Point 2 during the immediately following financial year.	AED 400,000 and any other administrative measure that the National Assessing Authority may take, including suspension, withdrawal, or non-renewal of the trade license. Also, Exchange information with the foreign competent authority of 1) parent company, 2) ultimate parent company, and 3) ultimate beneficial owner.
4. Providing inaccurate information about Economic Substance Regulation when he was aware of its inaccuracy when submitted, or did not notify the regulatory authority or the National Assessing Authority when he discovered its inaccuracy after submitting it.	AED 50,000. Also, Exchange of information with the foreign competent authority of 1) parent company, 2) ultimate parent company, and 3) ultimate beneficial owner.

PROBABLE REASONS FOR ATTRACTING PENALTY UNDER ESR

SOME INSTANCES OF NON-COMPLIANCE NOTED IN PREVIOUS ESR FILINGS IN THE UAE

Notification submitted within the due date, notifying a relevant activity, and missed to file the ESR Report.
Notification filed with a mistake and the entity files a fresh notification instead of amending the previous one. Now, this fresh notification crossed the due date, triggering a penalty.
Mistake in identifying the applicability of ESR for newly formed entities.
Errors due to wrong identification of “Financial Year” of the entity.
The failure in the submission of additional information requested by the authority within the time frame.

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