- January 4, 2021
- Posted by: Aswani
- Category: News
The UAE businesses are all set to comply with the Economic Substance Regulations (ESR). Initially the deadline to submit the ESR notification and report was December 31st, 2020 and now this has been extended to January 31st, 2021.
The Ministry of Finance (MoF) released a series of notices, statutory forms and guidance forms to ensure that all the licensees were offered enough time to comply with the ESR regulations. The MoF has even released a portal for licensees to file their ESR reports. A few aspects that need to be considered while filing the ESR report are stated below;
A. Standalone financial statements:
The ESR report requires the submission of all the financial information regarding their business activity. Many UAE businesses only prepare and submit audit reports at the headquarters level, in such cases, where the standalone financial statements are not available; the licensees should look into whether management- certified accounts are of help.
B. No employees:
For companies that are formed only to hold shares and investments in others, while reporting the ESR, they may not be able to show the list of employees, as they may not have any. In order for the company to meet the adequacy test, they can show the involvement of the employees at the HQ under the “outsourcing provider” details.
C. No expenditure:
When an organization is involved in activities like lease finance, the company or the employees may not incur any expenses on a full-time basis. This may establish the fact that the loan provided to the company was issued before 2019. In such cases, only an accounting entry will be made for the accrual of interest. The situation can be stated with the help of relevant documents when the licensee opts to report nil expenditure for such transactions.
D. No board meetings:
While submitting the ESR report, it is a must to include the details of the board meetings (except for licensees engaged in a holding company.) This can be exempted in the absence of a structured secretarial law in the UAE. In support to the decision-making sequence, the organization should provide substantial documents.
The ESR report has provisions to add any additional information the company wishes to share. Usually, licensees who are part of the large family business opt for this to inform the authorities about the business structure and other necessary facts.
The licensees and authorities are thriving to make the first set of ESR a success. With the drastic turn of events that took place in 2020, things are not easy, yet everyone is trying their best. The changed laws make things even more complicated than earlier as well.