Economic Substance Regulations & Beneficial Owner (UBO) Procedures & Deadline – FAQs
November 15,2020 / Haroon Juma / Economic Substance Regulation
Under the enactment of two pieces of legislation affecting Mainland and Free Zone entities registered in the UAE:
- Cabinet Resolution No. (58) of 2020 regulating Beneficial Owner Procedures (the “Resolution”) coming into effect on 28 August 2020 replacing Cabinet Resolution No. 34 of 2020 issued earlier this year.
- And Cabinet Resolution No. 57 of 2020 (the “amended ES Regulations”) issued on 10 August 2020 replacing the original ES Regulations, along with updated Guidance clarifying the amended ES Regulations (Ministerial Decision 100 of 2020 dated 19 August 2020).
All entities will be required to submit an online declaration for the financial year 1st January to 31st December 2019 by 31st December 2020. For more information click here.
Our FAQs provide a helpful summary to the filing process and complements our previous articles detailing the specific legislation.
|What is the purpose of this Legislation?||Enacting these regulations, the UAE is seeking to take progressive steps in its commitment to comply with international good governance standards|
|Will your entity need to submit a filing even if a filing was made for ESR to the Licensing Authority?||
There are changes in the ESR regulations which require reassessment if your ESR relevant activities and to file an accurate declaration under the law.
In addition, the forms now required a single declaration for UBO and ESR for your entity affecting the FY 2019.
|When and how can the filing be submitted?||
The online portal is yet to go-live, however, the MoF has recently issued the templates of the ESR notification and the ESR Report, which provided insight into the ESR compliance on the required data and records.
It is expected the portal will be live first week of December 2020 and you will have to file by 31st December .
|Will you require a filing every year?||
Every financial year your entity is operating, you will be obliged to declaration by the stated deadlines for relevant activities for the previous financial year
If your Licensing Authority did not request a filing
you were out of scope for ESR in your last declaration, do you need to submit again?
Even if you do not fall into the scope of the ESR regulations, you will need to file a declaration by 31 December 2020 for FY 2019.
During the first submission process, your regulatory authorities may have a filing only of your entity conducted relevant activities. This is no longer the case; you must make a declaration.
|What are the compliance timelines under ESR?||
For the financial year starting on or after January 1, 2019, a company is required to submit ESR Notification within 6 months from the end of the relevant financial year and the ESR report, if applicable, within 12 months from the end of the relevant financial year.
The above timelines could vary depending on the go-live status of the online portal by MoF.
Therefore, if your entity was incorporated on July 1, 2018 with its financial year ending June 30, 2019. What would be the first reportable period under the ESR?
ESR is applicable in relation to financial years commencing on or after January 1, 2019. Accordingly, the financial year of your entity from July 1, 2018 to June 30, 2019 would not be covered under this ESR filing.
The first reportable period for ‘Company D’ would be from July 1, 2019 to June 30, 2020.
|What is an “Exempt” status under ESR||
The amended ESR legislation has introduced a category of ‘exempt licensees’ to reduce the burden for companies and covers
(a) Investment Funds,
(b) Licensee that is a tax resident in a foreign jurisdiction,
(c) a UAE branch of a foreign entity (if taxed in a foreign jurisdiction); and
(d) entities that carry out business in the UAE which are wholly owned by UAE residents/nationals and are not part of a multinational group.
A local company should be covered under category (d) and would be required to submit only the ESR notification along with certain documents on an annual basis.
Based on the category of the ‘exempt licensee’, the prescribed documents could include tax residency certificate of the foreign jurisdiction, details and tax residency certificate of the Head Office (Foreign Company), details of the shareholders of the companies and/or financial statements.
|What if I do not make a submission?||Licensees and/or Exempted Licensees that fail to resubmit their Notification by 31st December 2020 will be subject to a penalty of AED 20,000 under Article 13 of Decision 57 for failure to provide a Notification.|
Ensuring your entity is accurately assessing its ESR and UBO obligations and filing on time can prepare your manage the new Legislation.
As an FTA Registered Tax Agency operating to ISO 9001 Quality Management and 27001 Information Security standards, we help business meet the compliance obligations to reduce risks.
Contact us for an free initial consultation to help you.
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